1 December 2005 External T.I. 2005-0155975E5 - Cellular Phone Airtime Minutes & Taxable Benefits

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: Whether an employee's personal use of airtime minutes of an employer provided cellular phone plan represent a taxable benefit under paragraph 6(1)(a)

Position: Question of Fact.

Reasons: To the extent the phone plan selected by the employer for the employees' business use is reasonable, and the employees' incidental personal use of the cellular phone does not contribute to additional charges being incurred over the basic phone plan price, the personal use will generally not be regarded as a taxable benefit.

Kim Dibb
Canadian Armed Forces
Formation Business Analysis CFB 2005-015597

Esquimait, Bldg. N30 3rd Floor Rob Ferrari

Victoria BC V9A 7N2 (613) 957-2138

December 1, 2005

Dear Ms. Dibb:

Re: Employees' Personal Use of Employer Provided Cellular Phone Airtime

This letter is in reply to your e-mail of October 19, 2005 in respect of the above noted matter. In the situation you have described, an employer pays for cellular phone airtime plans ("plans") for its employees who are required to use cellular phones in their employment duties. The plans purchased by the employer allow for a specified number of airtime minutes per month and additional charges are made for airtime use over and above the plan's specified number of minutes. You ask if an employee's personal use of airtime minutes represents a taxable benefit under paragraph 6(1)(a) of the Income Tax Act (the "Act").

Our Comments:

Generally, the value of all benefits received or enjoyed by virtue of an office or employment must be included in income pursuant to paragraph 6(1)(a) of the Act. However, where the primary purpose of an employer in providing a cellular phone plan to employees is for business purposes, the incidental personal use of the cellular phone by the employee would generally not be regarded as a taxable benefit where such personal use does not contribute to additional charges being incurred over and above the basic plan price. However, the plan selected by the employer must be reasonable in respect of the employee's business related needs. If a more costly plan were purchased that provided airtime or other features beyond the reasonable business needs of the employee, there may be a taxable benefit to the employee with respect to the costs associated with the excess airtime or features.

A taxable benefit under paragraph 6(1)(a) of the Act will also arise where additional charges are incurred in excess of the price of a basic plan, as a result of the employee's personal use of airtime minutes or personal long distance calls. A taxable benefit will be considered conferred on the employee to the extent the employee's personal use of the cellular phone has contributed to additional charges over and above the price of the basic plan. For example, consider two scenarios in which a basic plan provided 200 minutes of airtime per month and a total of 250 minutes of airtime was used during the month. Under scenario 1, the employee's personal use of the cellular phone was 40 minutes and under scenario 2, the employee's personal use was 70 minutes.

In scenario 1, the employee's personal airtime contributed to 40 minutes of additional charges to the employer and therefore, those 40 minutes of airtime represent a taxable benefit to the employee. In scenario 2, the employee's personal airtime use was 70 minutes, however, the employee's personal use only contributed to the employer incurring additional charges for 50 minutes of airtime. Accordingly, only the additional costs with respect to 50 minutes of additional airtime would represent a taxable benefit to the employee.

As previously indicated, if in either of the above scenarios additional costs were incurred as a result of the employee's personal long-distance calls, the costs with respect to those long-distance charges would also represent a taxable benefit to the employee.

Yours truly,

Randy Hewlett
Manager
Business and Individual Section
Income Tax Rulings Directorate
Policy and Planning Branch