5 December 2007 External T.I. 2007-0232051E5 - Employer-provided gifts and awards

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: Employer-Provided Rewards under an Incentive Program.

Position: General comments.

Reasons: Question of fact.

XXXXXXXXXX  						2007-023205
								Michael Cooke
December 5, 2007

Dear XXXXXXXXXX:

Re: Employer-Provided Rewards under an Incentive Program

This is in reply to your electronic correspondence dated April 18, 2007, with respect to the taxation of a reward point program instituted by your employer. Specifically, you indicate that your employer issues employees points as a reward for meeting certain performance targets. These points can be redeemed or exchanged for gift items provided by your employer.

You indicate that your employer has attributed a value of $XXXXXXXXXX to each point and included the total value of these points on the employees' T4 slips in the taxation year in which such points were awarded instead of the taxation year when the points are actually redeemed or exchanged for a gift item. You also indicate that the number of points that are required to be redeemed or exchanged to acquire a gift item appears to be significantly greater than its fair market value. As an example, you indicate that a $XXXXXXXXXX gift certificate could require the redemption or exchange of XXXXXXXXXX points.

You are concerned with the timing and amount of the income inclusion with respect to your employer's reward point program and have asked for our views.

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 dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. The following comments are, therefore, of a general nature only and are not binding on the Canada Revenue Agency ("CRA") with respect to your particular situation.

Pursuant to subsection 5(1) of the Income Tax Act (the "Act"), a taxpayer's income for a taxation year from an office or employment is the salary, wages and other remuneration received by the taxpayer in the year. In addition, paragraph 6(1)(a) of the Act generally requires a taxpayer to include in computing employment income for a taxation year the value of benefits of any kind that are received or enjoyed by the taxpayer in the year in respect of, in the course of, or by virtue of an office or employment. This would include any non-cash benefits received by an employee in a taxation year.

Where an employer rewards an employee for meeting or exceeding performance objectives directly related to his or her employment duties, it is our view that the fair market value of such a reward would be considered part of the employee's remuneration and thus taxable under section 5 of the Act.

While the determination of the income tax consequences of a particular employee reward program cannot be determined without considering all the relevant facts, in the situation outlined above, the points would not appear to have any value until they are redeemed or exchanged for a particular gift item. Accordingly, it is likely that no employment benefit would arise until the points are used to acquire a particular gift item, at which time the fair market value of such gift item, less any amount paid by the employee to redeem the points, if any, would be included in the employee's income. Finally, since the onus is on the employer to determine the value of any gift item it may provide to an employee, we suggest that you discuss the valuation issues with your employer directly.

For more information on the taxation of these types of employee benefits you may refer to www.cra.gc.ca/gifts.

We trust that our comments will be of assistance.

Yours truly,

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