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: How does the Canada Revenue Agency determine whether a firefighter qualifies for the exemption at subsection 81(4) of the Income Tax Act.
Position: Generally, it will accept the determination of the firefighter's status by the municipality or public authority.
Reasons: Interpretation of subsection 81(4) of the Income Tax Act. The expression "volunteer firefighter" has a particular meaning, as evidenced in provincial legislation.
XXXXXXXXXX 2008-027685
Nancy Turgeon, CGA
July 7, 2009
Dear Sir:
Subject: Exemption for the first $1,000 of income received by volunteer firefighters
This is in response to numerous requests received by the Canada Revenue Agency ("CRA") regarding the admissibility of certain volunteer firefighters to the above-noted exemption. More specifically, this letter will attempt to provide clarifications on the application of the exemption found at subsection 81(4) of the Income Tax Act (the "Act") to emergency services volunteers.
Unless otherwise stated, all statutory references in this letter are references to the provisions of the Act, R.S.C. 1985 (5th supp.) c. 1, as amended.
Since the introduction of this exemption in the Act, several municipalities and other public authorities have examined the status of firefighters employed by them and have questioned the availability of the exemption to the income that these workers earn. We hope that the comments in this letter will assist parties in making an informed decision on this issue.
The Act does not provide for a definition of the word "volunteer". It is therefore necessary to refer to the ordinary meaning of the word. The Collins English Dictionary 1 defines a volunteer as a person who does some act or enters into a transaction without being under any legal obligation to do so and without being promised any remuneration for his services. Generally, a volunteer is not an employee of the municipality or public authority for whom he is performing services nor is he performing his services as an independent contractor.
However, many tasks undertaken today by volunteers are no longer performed gratuitously. Some volunteers receive modest sums of money, gift certificates or goods and/or services in consideration for the services rendered. Nevertheless, this consideration often times does not adequately reflect the amount of work performed nor the quality of the services provided. Furthermore, the consideration paid is often not enough to ensure the provision of services by the volunteers and does not reflect the fair market value of the services rendered. In such situations, these amounts are not taxable.
It is necessary to examine other situations involving volunteers. A ski resort often gives a seasonal pass to an individual who join a ski patrol in order to keep a watchful eye on the slopes. This individual is a volunteer. Also, an individual who is granted access to a golf course (free green fees) in consideration for patrolling the course in order to ensure that the players respect the club's rules and regulations is also a volunteer.
However, when the amount of remuneration paid to volunteers is sufficient to influence their involvement or participation, it is very likely that the remuneration is taxable as employment income or income from a business.
Hence, if some of these volunteer firefighters are either employees or independent contractors, the municipality or the public authority must establish the nature of the relationship it has with the firefighter. When an employment relationship exists, the remuneration and taxable benefits provided to this employee are taxable pursuant to sections 5 and 6. However, when the firefighter is a self-employed individual, his or her earnings constitute income from a business which are taxable under section 9. From that moment, the income received can be subject to different source deductions provided for in the Act or withholdings that businesses have to make.
Subsection 81(4) allows an individual, employed by a government, municipality or public authority, to exclude from the computation of his income the lesser of $1000 and the total of amounts received in the year for the performance, as a volunteer, of the individual's duties as an ambulance technician, a firefighter or a person who assists in the search and rescue of individuals or in other emergency situations.
If the Minister of National Revenue so demands, the employer must certify in writing that the individual was in the year a person described above and that the individual was at no time in the year employed or otherwise engaged by the employer, otherwise than as a volunteer, in connection with the performance of any of the duties referred to above.
We do not think that subsection 81(4) applies only to firefighters that are volunteers pursuant to the ordinary meaning of that word. If this was the case, the 81(4) exemption would lose all of its meaning as it only applies to taxable income. It is not sufficient to combine the words firefighter and volunteer in order to come up with an adequate definition of this expression.
At the outset, most volunteer firefighters were men and women from small communities that did not have structured fire departments. The municipalities hired people, gave basic training, established schedules according to the availability of each and everyone. When there was a fire, these volunteers were contacted according to an established schedule. No compensation or retribution was handed out as this represented a community service. With less and less volunteers, the municipalities decided to compensate the volunteers for their availability, periods of response, travels, trainings, implications and expenses incurred in these volunteer activities.
Today, for all practical purposes, no firefighter can be labelled as a "volunteer" in the true sense of the word, i.e. of his or her own free will. Furthermore, the compensation that they receive in exchange for their services highly suggests that they are employees.
Volunteer firefighters can receive substantial amounts of money if they are frequently asked to service their community. It is quite frequent to see some of them making in excess of $1,000 per year. But, they are still "volunteer firefighters" and the exemption under subsection 81(4) is specifically for them.
In order to better understand the situation with volunteer firefighters, we have to look elsewhere. A number of provincial laws and regulations have a daily impact on employees' life such as legislation on labour standards or the ones on occupational health and safety. We find in those legislation and regulations definitions for "volunteer firefighters" that are quite different that the ones for regular or part-time firefighters. The Fire Protection and Prevention Act, 1997 2 of Ontario and the Quebec's Guide du Recensement des mesures et des ressources municipales en sécurité incendie de 2001 each contain a definition of "volunteer firefighters". The CRA is of the opinion that we should base our understanding on who is a volunteer firefighter in reading the definitions established by these legislations and ensuing publications. This approach allows shedding some light on the meanings provincial government administrations give to the expression as well as other municipal or public instances.
We are convinced that municipalities and other public authorities are better able to determine the status of their employees. Paragraph 81(4)b) states that this responsibility clearly falls on the shoulders of the municipality or public authority. It is clearly indicated that, at the request of the Minister of National Revenue, the municipality or public authority has to certify in writing that a given individual is a "volunteer firefighter" according to paragraph 81(4)(a). If there is an audit, the municipality or public administration could be asked to indicate clearly the circumstances that justified its decision to grant or not the exemption to an individual or a group of individuals.
If you need more information, please do not hesitate to contact us. We hope you find the above comments to be of some use.
François Bordeleau, LL.B.
Manager
Individuals, Business and
Partnerships Section
Business and Partnerships Division
Income Tax Rulings Directorate
ENDNOTES
1 The Collins English Dictionary, 4th ed., Glasgow : HarperCollins Publishers; 1999. Volunteer; p. 1708
2 1997, S.O. 1997, c. 4
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2009
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2009
Email this Content