20 August 2007 External T.I. 2006-0216251E5 - Employer-Paid Fitness Membership

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 employer-paid fitness membership is a taxable employment benefit.

Position: Generally yes but question of fact.

Reasons: The law.

XXXXXXXXXX 								Michael Cooke
									2006-021625
August 20, 2007

Dear XXXXXXXXXX:

Re: Employee Benefits - Employer Paid Fitness Memberships

We are writing in response to your letter of November 29, 2006, wherein you requested our opinion on the taxable status of employer-paid fitness fees or memberships under paragraph 6(1)(a) of the Income Tax Act (the "Act").

XXXXXXXXXX (the "Employer") is an accredited post secondary education facility. The Employer specializes in XXXXXXXXXX which encompasses the latest in technology and industry requirements.

You indicate in your letter that XXXXXXXXXX is intensive and incorporates a significant physical fitness component such that XXXXXXXXXX instructors are required to have and maintain above-average fitness levels to be able to perform their employment duties. Consequently, you would like one or more of your XXXXXXXXXX instructors to receive additional physical fitness training (via a fitness club membership or other fitness training program) for the purpose of increasing the cardio fitness levels and overall skill levels of such participating employees. The Employer would pay the costs for any fitness club membership or other fitness training program on behalf of its XXXXXXXXXX instructors.

Your question is whether the amounts to be paid by the Employer for such fitness programs would be taxable 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. This Circular and the other publications referred to in this letter are available on our website at http://www.cra-arc.gc.ca. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office.

The position of the Canada Revenue Agency ("CRA") with respect to the taxable benefit implications of employer-paid fitness club memberships and other training related activities is outlined in Interpretation Bulletins IT-470R (Consolidated), Employees' Fringe Benefits and IT-148R3, Recreational Properties and Club Dues. Although we are unable to comment specifically on the situation outlined in your letter we are prepared to offer the following general comments.

Whether the cost of an employer paid fitness club membership or other fitness training program is a taxable benefit to an employee under paragraph 6(1)(a) of the Act is a question of fact. The determination would involve a review of all the relevant facts and details including, but not limited to, the specific job requirements of the employees in question and how such fitness club membership or other fitness training program would specifically relate to these job requirements.

Generally, the payment or reimbursement of fitness club membership fees or fitness training course by an employer would result in a taxable benefit to the employee. However, if an employee's membership in a fitness club or participation in some other fitness training course is principally (i.e. generally meant to be more than 50%) considered to be to the employer's advantage or benefit, the employee will not be considered to have received a taxable benefit. In addition, as noted in paragraph 12 of IT-148R3, the onus is on both the employer and the employee to establish whether such memberships or dues are primarily to the employer's advantage.

Generally, we would not consider that the employer is the primary beneficiary where the employee's membership in a fitness club or fitness training course provides an indirect benefit to the employer. This would be the case where the employee becomes physically healthier as a result of utilizing the club's facilities and consequently becomes generally better able to perform his or her duties (e.g. is sick less often). In such situations, the employee is regarded as being the primary beneficiary and would be in receipt of a taxable benefit described in paragraph 6(1)(a) of the Act.

However, there may be situations in which the nature of the particular employment and/or the terms of the employment contract require that an employee meet certain stringent fitness standards, and if it can be demonstrated that a particular fitness training course or fitness club membership fulfills this specific employment requirement, it may be considered that the primary beneficiary is the employer. In such a situation, the amounts paid by the employer for the program or membership would not represent a taxable benefit to the employee under paragraph 6(1)(a) of the Act.

We trust the above will be of assistance to you.

Yours truly,

Renée Shields
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch