14 May 2002 External T.I. 2002-0135435 - EMPLOYEE BENEFITS

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: Whether an employee incentive program results in taxable benefits in the hands of the employee. Under the program, XXXXXXXXXX .

Position: Yes.

Reasons: XXXXXXXXXX , our policy with respect to non-cash awards would not apply.

XXXXXXXXXX 2002-013543
J. Gibbons, CGA
May 14, 2002

Dear XXXXXXXXXX:

We are replying to your letter dated April 2, 2002, concerning XXXXXXXXXX (hereinafter referred to as the "Program"), a pilot project launched by XXXXXXXXXX (the "Taxpayer"). Our comments are of a general nature only since we cannot confirm the tax implications of particular transactions unless the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular IC 70-6R4. As we understand it, the Program can be briefly described as follows:

XXXXXXXXXX.

Our comments

Generally, the value of all benefits received or enjoyed by virtue of an office or employment must be included in income pursuant to paragraph 6(1)(a) of the Income Tax Act. However, because it is recognized that there is an administrative burden placed on employers when dealing with certain employee benefits, the Canada Customs and Revenue Agency strives to take reasonable positions on employee benefits without compromising the overall purpose of taxing such benefits.

As you know, we recently announced a new policy on employer-provided gifts and awards in Income Tax Technical News Issue #22. Under the new policy, an employer can give an employee, on a tax-free basis, two non-cash gifts per year for special occasions, such as Christmas, birth of a child, or marriage, where the total cost of the gifts (including all taxes) is less than $500. Similarly, employers will be able to give employees two non-cash awards per year, on a tax-free basis, in recognition of special achievements, such as reaching a set number of years of service, meeting or exceeding safety standards, or reaching similar milestones where the total cost of the awards (including all taxes) is less than $500. The employer will be able to deduct the cost of gifts and awards. Cash or near-cash gifts would not be covered by this policy, and the value of such gifts would therefore be considered taxable employment benefits notwithstanding the cost of the gifts. We consider near-cash gifts to mean any items that can readily be converted to cash, or are essentially equivalent to cash, such as securities, gold nuggets, or gift certificates.

In our view, the new policy on employer-provided gifts and awards would not apply to the Taxpayer's Program XXXXXXXXXX.

Please refer to the 2001-2002 Employers Guide to Taxable Benefits for more information on the reporting requirements for various benefits, and the corresponding withholding requirements for income tax, Employment Insurance, and Canada Pension Plan. You may also call or visit the Business Enquiries section of the appropriate tax services office for further assistance in this regard. Please note that the publications referred to in this letter are available on our website at www.ccra-adrc.gc.ca.

We trust that these comments will be of assistance.

Yours truly,

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

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