8 December 2004 External T.I. 2004-0098471E5 - Protective Clothing-Taxable Benefit

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.

Principal Issues: Taxability of benefits received by employees who are reimbursed or provided an allowance by the employer for the purchase of protective footwear. Definition of "protective" clothing.

Position: Question of Fact.

Reasons: When an employer reimburses an employee for an expense incurred for the purchase of protective clothing required for employment purposes and the employee provides the employer with a receipt, the employee is not considered to have received a taxable benefit under the Income Tax Act. However, when the employer pays the employee an amount that is not documented by a receipt, a taxable benefit is received by the employee, unless the law requires that protective clothing be worn on the work site, the employee actually bought the protective clothing and the amount of the reimbursement is reasonable.

2004-009847
XXXXXXXXXX Luisa A. Majerus, CA
(613) 957-2138
December 8, 2004

Dear XXXXXXXXXX:

Protective Clothing - Taxable Benefit

This is in reply to your letter dated October 12, 2004, requesting confirmation of the taxable status of the clothing allowance provided by XXXXXXXXXX (the "Employer") to the XXXXXXXXXX employees (the "employees").

Specifically, you provided that the Employer pays the employees an annual clothing allowance of $XXXXXXXXXX to be used to purchase protective footwear and other clothing (i.e. blue jeans, work shirts) worn while performing their duties at work. Employees are not required to provide receipts to the Employer for these purchases. You have requested our interpretation as to whether this allowance is a taxable benefit to the employees.

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.

Generally, as noted in paragraph 29 of Interpretation Bulletin IT-470R - Employees' Fringe Benefits, an employee who is supplied with a distinctive uniform which is required to be worn while carrying out the duties of employment or who is provided with special clothing (including safety footwear) designed for protection from the particular hazards of the employment, is not regarded as receiving a taxable benefit. A copy of IT-470R can be found on our website at www.cra-arc.gc.ca. Furthermore, where an employer pays an accountable allowance to employees (receipts are required) to buy uniforms or protective clothing, this amount is considered to be a reimbursement of expenses and not a taxable benefit.

In the present situation, the entire annual clothing allowance would be a taxable employment benefit since it does not have to be substantiated. However, if the employees used part of the allowance to purchase safety footwear, that portion of the allowance would not be taxable if the employee produced receipts in support thereof. Further, if the remaining portion of the allowance were used to buy other protective clothing (as noted in the above-referenced bulletin) and were substantiated with receipts, there would be no taxable benefit.

We trust this information is helpful.

Yours truly,

John Oulton, CA
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch