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 the distribution of gift certificates by a certified union to its members is a taxable benefit or non-taxable receipt.
Position: Probably not taxable under paragraph 3a. Union dues equal to the value of the gift certificates are probably not deductible in calculating the member's income from an office or employment pursuant to sub-paragraph 8(1)(i)(iv) and paragraph 8(5)(c) of the Act.
Reasons: Based on the principles of the Fries case the gift certificates are probably not income from a source. However, the union dues equal to the value of the gift certificates are probably not deductible to the union members pursuant to sub-paragraph 8(1)(i)(iv) and paragraph 8(5)(c) of the Act.
XXXXXXXXXX 2007-026112
J. White
December 16, 2008
Dear XXXXXXXXXX :
Re: Distribution of Gift Certificates to Members of a Certified Union
I am responding to your letter in which you requested a technical interpretation on whether the distribution of gift certificates by a certified union to its members is a taxable benefit or a non-taxable windfall to those members.
The situation in your letter appears to relate to a factual one, involving a specific taxpayer. It is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advanced income tax ruling. For more information about how to obtain a ruling please refer to Information Circular IC 70-6R5, Advanced Income Tax Rulings, dated May 17, 2002. Should the situation involve a specific taxpayer and transactions already completed, you should submit all relevant facts and documentation to the appropriate Tax Services Office. Although we cannot comment on your specific situation, we are prepared to provide the following general comments, which may be of assistance.
Our Comments
Paragraph 3(a) of the Income Tax Act (Canada) (the Act) provides that the income of a taxpayer for a taxation year is the total of all amounts each of which is the taxpayer's income for the year (other than taxable capital gains from the disposition of property) from a source inside or outside Canada including the taxpayer's income for the year from an office, employment, business or property.
Based on the principles of the R v Fries (1983) C.T.C 2124 case, a gift certificate provided by a union from union funds to a member of the union is probably not taxable as "income ....from a source" within the meaning of section 3 of the Act. Where a member of the union is an employee of the union, the gift certificate provided by the union to that employee will be a taxable benefit to the employee in accordance with paragraph 6(1)(a) of the Act. The Canada Revenue Agency's policy on the taxation of gifts and awards given to employees may be viewed at http://www.cra-arc.gc.ca/gifts/.
Paragraph 8(5)(c) of the Act provides that union dues are not deductible by the taxpayer in calculating income from an office or employment where the dues are levied for any other purpose not directly related to the ordinary operating expenses of the union. It is our understanding that the gift certificates will be issued to the union members out of surplus operating funds of the union. One may question the purpose of union dues levied when they result in surplus operating funds which are used to provide gift certificates to union members. Where it's determined that the union dues were not used for purposes directly related to the ordinary operating expenses of the union, those dues will not be deductible in calculating the member's income from an office or employment.
Subparagraph 8(1)(i)(iv) of the Act provides that union dues are deductible in calculating a taxpayer's income from an office or employment to the extent that they are not reimbursed. The gift certificates provided to union members will probably be considered a reimbursement of union dues. As such, the portion of the union dues paid by the members equal to the value of the gift certificates will not be deductible in calculating the member's income from an office or employment pursuant to subparagraph 8(1)(i)(iv).
We trust that our comments will be of assistance to you.
Yours truly,
Nerill Thomas-Wilkinson, CA
for Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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