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 payments made from a U.S. charity set up to provide emergency assistance to employees of a large employer, who require emergency financial assistance due to a catastrophic event beyond the employee's control, to obtain the basic necessities of life would be considered taxable employment benefits, or would otherwise be included in income.
Position: Not required to be included in employment income, or otherwise included in income.
Reasons: Not employment income because employees receive the grants in their personal capacity as evidenced by the fact that the charity operates completely independent of the employer, the employer is not involved in the decision-making process, and the grants are based on the employee's need for emergency assistance. Also, the amount would not be social assistance because it is a one-time grant to cover an employee's basic necessities of life similar to disaster relief funding, and is not within the spirit of paragraph 56(1)(u) as shown by the fact that that such payments are excepted from the normal social assistance reporting requirements.
XXXXXXXXXX 2003-000575
XXXXXXXXXX, 2003
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling
XXXXXXXXXX
This is in reply to your letter dated XXXXXXXXXX, requesting an advance income tax ruling on behalf of XXXXXXXXXX. We also acknowledge the additional information provided on XXXXXXXXXX.
We understand that, to the best of your knowledge and that of the taxpayers involved, none of the issues involved in the ruling request is:
(i) in an earlier return of the taxpayer or related persons,
(ii) being considered by a tax services office or taxation centre in connection with a previously filed tax return of the taxpayer or related persons,
(iii) under objection by the taxpayer or a related person,
(iv) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired, and
(v) the subject of a ruling previously issued by the Directorate.
DEFINITIONS
In this ruling, unless otherwise expressly stated:
"The Act" means the Income Tax Act, R.S.C. 1985, c.1 (5th Supp.), as amended to the date hereof, and unless otherwise stated, every reference herein to a part, section, subsection, paragraph or subparagraph is a reference to the relevant provision of the Act;
"The CCRA" means the Canada Customs and Revenue Agency;
"Canco" means XXXXXXXXXX;
"The Fund" means XXXXXXXXXX;
"The IRS" means the United States Internal Revenue Service;
"U.S." means the United States of America;
"USCo" means XXXXXXXXXX.
Our understanding of the facts, proposed transactions and the purpose of the proposed transactions, is as follows:
Facts
1. The Fund was incorporated on XXXXXXXXXX as a nonprofit corporation under the laws of XXXXXXXXXX.
2. The Fund is recognized by the IRS as a tax-exempt public charity under section 501(c)(3) of the Internal Revenue Code.
3. The initial contributors to the Fund were the XXXXXXXXXX founding shareholders of USCo, one of whom is currently on the board of directors of USCo. All the initial contributors are still shareholders of USCo but have never been on the Board of Trustees of the Fund. Furthermore, the initial contributors are not, and have never been, involved in the day-to-day operations of the Fund.
4. The Board of Trustees of the Fund are all employees of USCo, the majority of whom are not officers of USCo. Furthermore, no member of the Board of Trustees of the Fund is an employee of Canco, a wholly-owned subsidiary of USCo.
5. The Fund operates completely autonomously from both Canco and USCo.
6. The only purpose of the Fund is to provide short-term, emergency assistance to employees of the operating subsidiaries of USCo who are in financial need as a result of a natural disaster, catastrophic illness or accident, death, or other extreme circumstances beyond the employee's control. The Fund helps to ensure that employees, their survivors and dependents have the basic necessities of life (typically food, shelter, and clothing).
7. In addition to the grant assistance, the Fund will match gifts (subject to certain dollar limits) that are made from one USCo employee directly to another USCo employee. Typically such gifts are made to employees facing financial difficulties in situations that may or may not qualify for a grant.
8. Grants from the Fund are not intended to be a replacement for insurance. Accordingly, grants will not be made to pay insurance deductibles, repair or rebuild houses, replace non-essential items (such as electronics, or living room/dining room furniture), pay medical bills, or pay funeral expenses. Grants are also not made to employees who cannot meet their basic necessities of life due to excessive credit card debt or job loss.
9. All employees of USCo and its operating subsidiaries are eligible for grant assistance from the Fund, including those on leaves of absence. Currently, approximately XXXXXXXXXX employees are eligible for assistance from the Fund.
10. The Fund does not maintain any employment information with respect to potential grant recipients nor with respect to any employee. All decisions on grant assistance made by the Fund are made independently of the employer.
11. The Fund receives a majority of its contributions from employees of USCo. USCo will match contributions (subject to certain limits) made by employees of USCo to certain qualifying charities, including the Fund. The only contributions received by the Fund from USCo are the donations made to match contributions by USCo employees. Generally, the contributions made by the employees of USCo and matching contributions paid directly by USCo are tax deductible in the U.S. To the date of this ruling, neither Canco nor the employees of Canco had contributed any monies to the Fund.
12. In order to receive a grant from the Fund, an employee of USCo must complete an application, typically with the assistance of a human resources manager, and provide detailed information and documentation concerning the applicant, his or her financial situation, and the circumstances which have created an emergency financial need.
13. Two sponsors are required for each applicant. A potential sponsor of a XXXXXXXXXX employee may include a XXXXXXXXXX manager, a district manager, or an officer. The sponsors are responsible for helping the employee complete the application, and verifying the factual accuracy of the information provided.
14. The application is then submitted to the Fund to determine if it meets program guidelines. If the guidelines are met, the Fund recommends an appropriate amount for an emergency assistance grant.
15. Based upon the recommendation of the Fund, applications for assistance are then reviewed and executed by the appropriate divisional president of USCo for internal control purposes. If this individual is not available to sign the application, it may be executed by the divisional controller. This approval process is only for internal control purposes, and the president or controller, as the case may be, has no authority to overturn decisions made by the Fund.
16. Based upon historical information from XXXXXXXXXX, the average grant to USCo employees was approximately U.S. $XXXXXXXXXX.
17. The Fund received a ruling from the IRS that the grants made to USCo employees from the Fund are considered non-taxable gifts under U.S. tax law.
Proposed Transactions
18. The Fund proposes to provide grant assistance to Canadian-resident employees of Canco, who are in financial need as a result of a natural disaster, life-threatening illness or injury, death or other extreme circumstances beyond the employee's control. The decision-making process with respect to determining the amount, if any, of the grant assistance, and the payment of the grants will be done in the same manner, and using the same guidelines as outlined above for USCo employees. However, with respect to the approval process outlined in paragraph 15 above, the President (or controller) of Canco will be responsible, for internal control purposes, for executing a recommendation for payment to a Canco employee.
19. The maximum amount available to an employee per circumstance would be $XXXXXXXXXX (Canadian) plus any additional amount paid by the Fund to match gifts made by employees. In no event will the grant from the Fund (excluding the matching grant) exceed the amount necessary to address the employee's financial hardship or emergency.
20. Each employee will be eligible to receive only one grant for a specific situation.
Purpose of the Proposed Transactions
21. The purpose of the grant assistance proposed to be made by the Fund is to enable the Fund to fulfill its charitable purposes. The articles of formation of the Fund do not contain any geographical limitations, and thus, the Fund may make grants to recipients in the U.S., Canada, and elsewhere.
RULINGS GIVEN
Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions, and purpose of the proposed transactions, and provided further that the proposed transactions are carried out as described in paragraphs 18 to 20 above, our rulings are as follows:
We confirm that:
A. Grant assistance provided to employees of Canco from the Fund in the manner outlined in paragraphs 18 to 20 above will not be considered employment income to the employees, and will not be included in their income pursuant to subsection 5(1) and paragraph 6(1)(a) of the Act.
B. Grant assistance provided to employees of Canco from the Fund in the manner outlined in paragraphs 18 to 20 above will not be required to be included in income under any other provision of the Act.
C. The Fund, or Canco, will not be required to withhold income tax, Canada Pension Plan contributions, or Employment Insurance premiums from the grant assistance paid, and will not be required to file any information return in respect of the grant assistance, or report the grant assistance on any information return filed pursuant to the Income Tax Regulations.
The rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R5 dated May 17, 2002, and are binding on the CCRA provided that Canco employees become eligible for grant assistance from the Fund by XXXXXXXXXX.
The rulings are based on the Act in its present form and do not take into account any proposed amendments to the Act which, if enacted, could have an effect on the rulings provided herein.
Yours truly
XXXXXXXXXX
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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