23 May 2008 External T.I. 2008-0267971E5 - Employer-Provided Transit Passes

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: Under what circumstances, if any, would the free bus passes issued by XXXXXXXXXX cease to be treated as tax-free benefits as described in paragraphs 43 and 44 of Interpretation IT-470R (Consolidated) Employees' Fringe Benefits.

Position: See attached response.

Reasons: The law.

XXXXXXXXXX 							Michael Cooke
								2008-026797
May 23, 2008

Dear XXXXXXXXXX :

Re: Employer-Provided Transportation Passes

This is in reply to your correspondence of February 12, 2008, asking whether free bus passes provided by the XXXXXXXXXX (the "City") to certain of its employees are a taxable benefit.

In your correspondence you indicate that XXXXXXXXXX (the "Transit Division") was formerly a separate legal entity ("TransitCo") that provided ground transportation services in the municipal region of XXXXXXXXXX TransitCo became a department of the XXXXXXXXXX City. At that time, it was agreed that all employees of TransitCo (i.e. management, bus drivers, office workers and mechanics) who became employees of the City, working in the Transit Division, would also continue to receive free bus passes. Moreover, it was also agreed that if an employee of the Transit Division subsequently transferred to another City department (such transferred employee hereinafter referred to a "Grandfathered Employee") he or she would continue to receive a free bus pass. We also understand that retired Transit Division employees and retired Grandfathered Employees as well as the spouse, or widow/widower of such persons receive free bus passes.

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. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. We are, however, prepared to offer the following comments.

Paragraph 6(1)(a) of the Income Tax Act (the "Act") includes in a taxpayer's income the value of any benefit whatsoever received or enjoyed by the taxpayer in respect of, in the course of, or by virtue of an office or employment. The broad wording of this provision means that a taxable benefit may exist where there is any connection between a benefit and the particular office or employment. However, as discussed in Interpretation Bulletin IT-470R (Consolidated) Employees' Fringe Benefits, certain fringe benefits are considered non-taxable privileges. Paragraph 43 of IT-470R confirms that employees of bus and rail companies will not be considered to have received a taxable benefit when their employers provide them with a free ground transportation pass which allows them to travel on equipment operated by their employers. This administrative policy would apply to all employees of the particular bus or rail company. Paragraph 44 of IT-470R extends this position to retired employees of such transportation companies. This longstanding administrative policy was described in the original version of IT-470R which was issued on April 8, 1988.

We can confirm that where a free ground transit pass is issued to a current employee or a retired employee of a ground transit authority (such as the Transit Division), or a spouse of such a person, the value of the pass will not result in a taxable benefit to the current employee or retired employee, as the case may be, as described in paragraphs 43 and 44 of IT-470R. However, where a Grandfathered Employee or retired Grandfathered Employee (or a spouse of such a person) receives a free bus pass, the administrative tax-free treatment described in paragraphs 43 and 44 of IT-470R would not apply. As such, it is our view that the fair market value of the bus pass or bus passes would result in a taxable benefit to the particular Grandfathered Employee or retired Grandfathered Employee, as the case may be.

Finally, where a free bus pass is issued to a widow or widower of a deceased Transit Division employee or Grandfathered Employee no taxable benefit would result assuming all the connecting factors to the employment with the City cease to exist as a result of the death of the particular individual.

We trust that our comments will be of assistance.

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