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 amount paid to employees with respect to the use of their tools, including a power saw, is required to be included in their income.
Position: Our general position is that such an amount is required to be included in the employee's income.
Reasons: The amount is taxable under paragraph 6(1)(a) of the Income Tax Act (the "Act") as an employee benefit or paragraph 6(1)(b) of the Act as an allowance.
M. Eisner, CA
June 27, 2002
Re: Compensation for Power Saws of Employees
This is in reply to your letter of April 22, 2002 and our discussion of June 12, 2002 (XXXXXXXXXX/Eisner), concerning the above noted subject.
You have indicated that your company is involved in the oil and gas industry and does seismic work. In carrying out the duties of their employment, some of the company's employees use their own power saws. With respect to each hour of work where an employee uses his or her power saw, the employer pays the employee an additional $4.00 per hour. The amount paid to an employee in respect of power saw use is included in the employee's income pursuant to the comments on page 38 of the 2001-2002 "Employers' Guide Payroll Deductions (Basic Information)" which refers to rent paid by an employer within the forestry industry to employees for the use of their power saws.
You have asked us to confirm your understanding that the hourly amount paid by an employer in the oil and gas industry to an employee in respect of the employee's power saw is also required to be included in the employee's income.
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 income tax ruling request submitted in the manner set out in Information Circular 70-6R5, dated May 17, 2002. Where the particular transactions are completed (as is the case in your situation), the enquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments, which are of a general nature.
In a situation where an employer makes payments, such as those described above, to an employee with respect to the employee's tools (including a power saw) used in the employer's business, it is our view that the payments represent a benefit received by virtue of the employer-employee relationship. Accordingly, the amounts are taxable in the hands of employees as employment income by virtue of paragraph 6(1)(a) of the Income Tax Act (the "Act").
Alternatively, all amounts received by an employee as an allowance for personal or living expenses, or as an allowance for any other purpose, must be included in income from employment by virtue of paragraph 6(1)(b) of the Act. Generally, an hourly rental rate for tools would constitute such an allowance. The Act makes certain exceptions in regards to allowances. These exceptions are provided for in subparagraphs 6(1)(b)(i) through to 6(1)(b)(ix) of the Act; however, there is no specific exception for a tool allowance.
The above comments apply to all employees (and not just employees in the forest industry) and are consistent with paragraph 23 of Interpretation Bulletin IT-470R (Consolidated) entitled "Employees' Fringe Benefits" (enclosed) which indicates that where an employer makes payments to its employees to offset the cost of tools that the employees are required to have in order to perform their work, these payments shall be included as income from employment.
We trust that our comments are of assistance to you.
Milled Azzi, CA
Business and Partnerships Division
Income Tax Rulings
Policy and Legislation Branch
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