Principal Issues: Follow-up inquiry to 2002-017458, in which we provided an opinion that an honorarium earned by a councillor for serving on certain commissions, on behalf of a municipality, is employment income when:
(a) The amount was paid directly to the municipality by the commission at the direction of the councillor or
(b) The amount was paid to the councillor by the commission and then turned over to the municipality by the councillor.
We also indicated that if all the conditions of section 118.1 of the Act were otherwise met, the councillor would be entitled to claim a non-refundable tax credit for a gift made to a Canadian municipality.
In the follow-up inquiry, further information was provided which indicated that the municipality has the authority to demand that a certain commission pay it an honorarium without the concurrence of the councillor. The municipality exercises this authority when the councillor already receives an annual salary for performing the duties of his or her office, which includes representing the municipality on the commission.
Position: If the municipality exercises its authority to demand that the commission directly pay it an honorarium, and does so without the concurrence of the councillor, the amount is not required to be included in the councillor's income under the Act. However, the councillor is not entitled to claim a non-refundable tax credit for the amount under section 118.1 of the Act.
Reasons: The councillor has not received the amount or directed the commission to pay it to the municipality. Therefore, paragraph 6(1)(c) and subsection 56(2) of the Act are not applicable. Further, under these circumstances it is likely that the amount can be considered a reimbursement to the municipality of an amount already paid to councillor and included in the councillor's taxable employment income by the municipality.
The councillor would not be entitled to a non-refundable tax credit under section 118.1. The amount would not be considered a "gift" under these circumstances, nor would it be reasonable to allow a credit in this situation since the amount in question is not included in the councillor's employment income.