14 November 2008 External T.I. 2008-0274211E5 - Taxability of Reimbursement of Blind Trust Fees

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 reimbursement of certain costs incurred to establish, maintain and/or dismantle a blind trust agreement of a public office holder gives rise to a taxable benefit.

Position: Question of fact.

Reasons: A public office holder will be in receipt of a taxable benefit whenever the reimbursement of costs is not matched with the costs incurred.

XXXXXXXXXX  								2008-027421

November 14, 2008

Dear XXXXXXXXXX :

Re: Technical Interpretation Request - Taxability of reimbursement of blind trust fees

This is in reply to your email of April 7, 2008 wherein you asked whether amounts reimbursed to individuals for blind trust fees are taxable.

It is our understanding that these reimbursements are paid to individuals from XXXXXXXXXX as a result of these individuals establishing blind trusts to hold certain assets that they must divest of to avoid any potential conflict of interest while the individuals are in public office. We further understand that these measures are undertaken in order to comply with "The Conflict of Interest and Post-Employment Code for Public Office Holders" (the "Conflict of Interest Code"). It is assumed the reimbursements would be in accordance with those permitted by the Schedule to the Conflict of Interest Code.

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. However, we offer the following general comments.

Our Comments

Our general views on the tax treatment of amounts reimbursed to a public office holder in respect of costs incurred for blind trust fees in the foregoing context are as follows:

1. Amounts paid to establish or dismantle a blind trust or blind management agreement, including legal, accounting and other financial costs, are non-deductible outlays of the public office holder. Any amounts received by a public office holder as reimbursement of these costs are not included in the public office holder's income.

2. Where the amount reimbursed to a public office holder matches his or her actual costs for the annual maintenance or administration of the blind trust or blind management agreement, and the reimbursement flows through to the person actually paying such costs, being either the public office holder or the blind trust, no taxable benefit arises to the public office holder and no deduction of these reimbursed costs is permitted in computing the public office holder's income or the blind trust's income, nor is it taken into consideration in computing any gain or loss from the disposition of any property.

3. To the extent that they are reasonable, the annual maintenance or administration costs of a blind trust or blind management agreement and the fees for services as a trustee, that are paid by a public office holder and not reimbursed, may be deductible by the public office holder in the year incurred: first, against income paid or payable to the public office holder from the trust or management agreement in the year; and secondly, the remaining portion, if any, against all other income for the year. Any excess will result in a non-capital loss and may be deducted against income of other years. For additional information on deducting non-capital losses, a public office holder should consult his or her tax advisor.

4. Where a public office holder receives a reimbursement of costs incurred by someone other than the public office holder, such as a spouse, a holding company, the blind trust or the blind management agreement, and the public office holder does not reimburse the payer of such costs, the reimbursement will be a taxable benefit to, and must be reported by, the public office holder on his or her income tax return.

5. It may be determined that a public office holder must sell, convert or transfer certain assets, other than to a blind trust or blind management agreement. Where the public office holder incurs costs related to such dispositions, he or she may be reimbursed for such costs. Where the public office holder is reimbursed for costs incurred to sell, convert or transfer an asset or for costs incurred to have his or her name removed from federal or provincial registries of corporations, such reimbursement will not give rise to a taxable benefit to the public office holder. Further, no deduction of these reimbursed costs is permitted in computing the public office holder's gain or loss from the disposition of any property. A public office holder should consult his or her tax advisor for the appropriate income tax treatment of these costs that have not been reimbursed

We trust that these comments will be of assistance.

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