17 February 2003 External T.I. 2002-0176345 - EMPLOYEE BENEFIT DONATIONS

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: (a) Whether a payment by a company to an athletic program for the specific use of the child of an employee is a taxable benefit to the employee. (b) Whether the company's entitlement to a deduction is adversely affected.

Position: (a) Yes (b) No

Reasons: (a) Subsection 5(1), paragraph 6(1)(a) and subsection 56(2) are sufficiently broad in their wording that the amount would be regarded as taxable to the employee. (b) Where such an amount is regarded as a taxable employment income, it would generally be considered incurred for the purpose of gaining or producing income. As such, the deductibility would not be adversely affected. However, because the amount is specifically designated for the benefit of a certain individual, it could not be regarded as a gift or donation for the purpose of sections 110.1 or 118.1.

Randy Hewlett, B. Comm.

XXXXXXXXXX 613-957-8973
2002-017634
February 17, 2003

Dear XXXXXXXXXX:

Re: Employee Benefit - Donations Earmarked For An Employee's Child

We are writing in response to your letter of November 18, 2002, wherein you requested a technical interpretation on the above-noted issue.

Your letter indicates that a company (the Company) is considering making a payment to "XXXXXXXXXX" (the Program), that will be specifically designated for the benefit of an employee's child who is an athlete under the Program. You also note that the employee is not a shareholder of the Company and that the amount may be paid in lieu of a potential increase in salary the employee would otherwise receive. Your main concerns are whether the amount is a taxable benefit and if the Company's entitlement to a deduction is adversely affected.

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 offer the following general comments.

Subsection 5(1) of the Income Tax Act (the Act) includes in an employee's income from an office or employment, the salary, wages and other remuneration received in the year. Further, paragraph 6(1)(a) of the Act includes in income the value of board, lodging and other benefits of any kind whatever received or enjoyed in the year in respect of, in the course of, or by virtue of an office or employment. An amount or benefit not directly received or enjoyed by an employee may also be included in income under these provisions by virtue of subsection 56(2) of the Act.

In our view, if an employer makes a payment to an athletic program for the direct benefit of an employee's child, as outlined above, taxable employment income to the employee would result. While the amount paid would not be a charitable gift or donation for the purpose of section 110.1 or 118.1 of the Act, it would likely be deductible as a general business expense laid out for the purpose of gaining or producing income from the business.

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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