16 December 2002 External T.I. 2002-0173335 - ITTN 22

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:

Inquiry with respect to the following two unrelated topics in ITTN 22 -

(a) Shareholder/Manager Remuneration: Does this position apply in the situation where a salary or bonus is paid to a family member that is not a shareholder, or in the case of a proprietor, when a salary or bonus is paid to his or her spouse?

(b) Employee Benefits - Question 9: Does a taxable benefit result when an employer provides an employee with a home computer, when the purpose for providing the computer is for the employer's benefit? Further, since the employee would own the computer, can a deduction be claimed for the entire cost of the computer?

Position: (a) No. (b) Question of Fact.

Reasons: (a) Policy only applies to shareholders of a CCPC. (b) Program must contain certain elements; see below.

XXXXXXXXXX Randy Hewlett, B. Comm.

2002-017333
December 16, 2002

Dear XXXXXXXXXX:

Re: Technical Interpretation Request: Income Tax Technical News No. 22

We are writing in response to your letter of November 13, 2002, wherein you make the following inquires with respect to two unrelated topics contained in Income Tax Technical News No. 22 (ITTN 22):

(a) Shareholder/Manager Remuneration: Does the position outlined in this topic apply in the situation where a salary or bonus is paid to a family member that is not a shareholder, or in the case of a proprietor, when a salary or bonus is paid to his or her spouse?

(b) Employee Benefits - Question 9: Does a taxable benefit result when an employer provides an employee with a home computer, when the purpose for providing the computer is for the employer's benefit? Further, since the employee would own the computer, can a deduction be claimed for the entire cost of the computer?

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 income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments on each of your inquiries.

(a) Shareholder/Manager Remuneration

This topic in ITTN 22, outlines the position of the Canada Customs and Revenue Agency (CCRA) of not challenging the reasonableness of a salary or bonus under section 67 of the Income Tax Act (the Act), where the amount in question is paid to a Canadian resident who is an active shareholder/manager of a Canadian-controlled private corporation (CCPC). In terms of your inquiry, you should note that the CCRA has not extended this position to situations where a salary or bonus is paid to a family member who is not an active shareholder/manager of the CCPC, or in the case of a proprietorship, where a salary or bonus is paid to the spouse of the proprietor. The CCRA reserves the right to challenge the reasonableness of the amount in these situations in accordance with section 67 of the Act.

(b) Employee Benefits - Question 9

Question 9 under this topic in ITTN 22, discusses the favourable advance income tax rulings issued by the CCRA with respect to employer-provided home computers. As noted in the response, the rulings that these computers did not constitute a taxable benefit was based on the position on employer-paid education and training costs contained in Income Tax Technical News No. 13. The programs had the following common characteristics:

1. The employers felt that it was critical for their future success that all employees become computer literate as soon as possible;

2. The employers also felt that the most efficient and effective way to develop their employees' computer and internet skills was to provide them with computers for use in their homes;

3. The programs were available to all employees;

4. The employers leased or purchased the computers, and had them delivered directly to the employees;

5. The employees could not transfer or sell the computer for a set period of time;

6. Employees who chose not to participate in the programs were not entitled to any compensation in lieu of their participation; and

7. The programs were initiated by the employers and were not part of any collective bargaining process.

It must be recognized that programs offered by different employers may have certain unique characteristics. Therefore, if an employer is proposing to implement a program to provide computers to employees for the purpose of developing their computer skills, the CCRA will consider the income tax consequences for the employer and employees in the context of an advance income tax ruling request.

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
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