22 April 2002 External T.I. 2002-0133095 - EMPLOYEE BACKGROUND CHECKS

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues: Employer is required to conduct criminal background checks on current and prospective employees.

1. If employees are required to pay for the check, can they deduct the cost?

2. If paid by employer, is there a taxable benefit?

3. If paid by the union, is there a taxable benefit?

Position TAKEN:

1. No.

2. No.

3. No. It may result in a portion of the dues being non-deductible by employees. However, not likely unless the union assesses a special levy to pay the cost.

Reasons:

1. There is no provision in section 8 allowing deduction.

2. Employer is the primary beneficiary.

3. Employer is the primary beneficiary. However, a portion of the dues may not be deductible under subparagraph 8(1)(i)(i) due to paragraph 8(5)(c). The expenses may not be "directly related to the ordinary operating expenses" of the union. Special levy would not be "annual dues".

XXXXXXXXXX 2002-013309
T. Young, CA
April 22, 2002

Dear XXXXXXXXXX:

Re: Criminal Background Checks on Employees

This is in reply to your inquiry of March 25, 2002, requesting our views on the income tax implications of criminal background checks on employees being paid for by various groups. We also acknowledge our telephone conversation of April 10 (Young/XXXXXXXXXX).

It is our understanding that XXXXXXXXXX (the "Employer") are now required to conduct criminal background checks on all current and prospective XXXXXXXXXX (the "Employee(s)") employed by them. The checks are expected to cost approximately $XXXXXXXXXX. You have asked for our views regarding the income tax treatment of three proposed scenarios:

1. If the Employee pays the cost, can the employee deduct the amount when computing his or her taxable income?

2. If the Employer pays the cost, is it a taxable benefit to the Employee?

3. If the Employee's union pays the cost, is it a taxable benefit to the Employee?

Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R4, Advance Income Tax Rulings, dated January 29, 2001. However, we are prepared to provide the following comments, which may be of assistance to you.

1. Employee-paid

Section 8 of the Income Tax Act (the "Act") enumerates the deductions that an employee may deduct in computing income from an office or employment. Subsection 8(2) of the Act states that "except as permitted by this section, no deductions shall be made in computing a taxpayer's income for a taxation year from an office or employment". Since there is no provision in section 8 of the Act which permits an employee to deduct the cost of a criminal background check in computing income from an office or employment, an employee is unable to deduct the cost thereof in computing income from an office or employment.

2. Employer-paid

Except where the Act provides otherwise, taxpayers are generally taxable on the value of all benefits they receive by virtue of their employment. Whether or not a taxable benefit is considered to be received by an employee as a result of an employer paying an expense on the employee's behalf is a question of fact that can only be determined on a case-by-case basis after reviewing all of the relevant facts. However, in making this determination, we would generally consider the reason the employer is paying or reimbursing the expense and who is the primary beneficiary of this payment. On that basis, it is our view that there is no taxable benefit to the Employees in the situation outlined.

3. Paid by Union

In our view, there would be no taxable benefit to the employee if the union were to pay the cost.

With respect to the deductibility of the union dues paid by employees, annual union dues are generally deductible pursuant to paragraph 8(1)(i) of the Act. As long as the union does not assess a special levy to pay for the background checks, in our view, the payment thereof would not, in and of itself, make a portion of the union dues non-deductible by the Employees. For more information, refer to Interpretation Bulletin IT-103R, Dues Paid to a Union or to a Parity or Advisory Committee, which is available on our website at http://www.ccra-adrc.gc.ca/tax/technical/incometax/menu-e.html.

We trust our comments will be of assistance to you.

Yours truly,

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch