10 August 2007 Internal T.I. 2007-0226111I7 - Golf Club 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: 1. Whether or not a golf club membership will result in a taxable employment benefit. 2. If there is an employment benefit, should it be prorated between the employee and employer portions pursuant to the Gillis case?

Position: 1. It is always a question of fact. 2. No.

Reasons: 1. It depends on whether the employee or employer is primarily benefiting from the membership. 2. The primary beneficiary approach to the assessing and valuation of taxable employment benefits is incompatible with proration.

 									August 10, 2007

	XXXXXXXXXX  TSO						HEADQUARTERS
	XXXXXXXXXX 							Kathryn McCarthy, CA
	Acting Program Officer
									2007-022611	

Golf Club Membership

We are writing in reply to your e-mail of March 1, 2007, wherein you requested our views as to whether certain golf club memberships will result in taxable employment benefits under the Income Tax Act ("the Act"). Further, you enquired as to the impact of the decision in Duncan E. Gillis v. The Queen ("Gillis") 2006 DTC 2093, heard under the informal procedure of the Tax Court of Canada (the "TCC").

You described a parent company ("the Parent") with a subsidiary company ("the Subsidiary"), which Subsidiary owns a golf course. The Parent pays the Subsidiary an annual fee of $XXXXXXXXXX which entitles the Parent to XXXXXXXXXX memberships as well as the right to use the facilities at the golf course for other purposes. In turn, the Parent provides golf club memberships at the golf course to XXXXXXXXXX executives. The Parent retains logs to substantiate the business use of the memberships.

Our Comments

Generally, the cost of a golf club membership provided to an employee is considered to be a taxable benefit included at 100% of fair market value in the employee's income, even though the dues or fees are not deductible by the employer pursuant to paragraph 18(1)(l) of the Act. However, if the employer and employee can establish that the membership is primarily for the employer's advantage, no taxable employment benefit will arise. This policy on golf club memberships can apply to employees in public relations or those who network with and entertain clients where it can be demonstrated that such work primarily benefits the employer. Further, even where the employer's business is unrelated to the golf business, the primary beneficiary of the membership may still be the employer.

In determining whether taxable employment benefits arise in your particular file, you may consider the guidelines referred to in the Adler case (2007 DTC 783). The TCC indicated that the determination of the primary beneficiary of an expenditure "requires an examination of the totality of the evidence with a view to assessing on a reasonable, practical basis whether under the particular circumstances" the employee's enjoyment of the expenditure by the employer was ancillary to the benefit derived by his employer. Factors that may be considered include the following:

• Could the employee have performed the job as well without the membership?
• Was there a business reason that obligated the employee to use the membership?
• Were there conditions that prohibited the personal use of the membership?
• Did the employer save money by providing the membership (compared to alternatives)?
• Does the employer advertise the membership as an inducement to attract or retain staff?
• Is the membership made available on the basis of salary, seniority, job function or some other criterion?

With respect to Gillis, in addition to being distinguishable on its facts, we note that it is an informal decision and section 18.28 of the Tax Court of Canada Act provides that informal decisions of the TCC shall not be treated as a precedent for any other case. Although the TCC prorated the shareholder benefit in the Gillis case, when considering benefits arising from employment, the primary beneficiary test has and continues to be applicable.

We trust the above comments are of assistance.

For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the electronic library version, or they may request a severed copy using the Privacy Act criteria. You should make requests for this latter version to Mrs. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.

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