14 January 2009 External T.I. 2008-0294521E5 - Employer-paid Social Events

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 employer-paid transportation and accommodation expenses for an out-of-town employee in order to allow the employee to attend the employer's social event that is generally available to all employees would result in a taxable benefit?

Could any excess, if any be covered under CRA's policy for gifts and awards.

Position: Question of fact, but possibly not a benefit.

Reasons: Previous positions taken

XXXXXXXXXX								2008-029452
									Michael Cooke
January 14, 2009

Re: Employer-paid Social Events - Taxable Benefits

This is in reply to your correspondence dated September 18, 2008, and our telephone conversation (Cooke/XXXXXXXXXX) on January 8, 2009, wherein you requested our views on the whether a taxable benefit would arise in the following circumstances.

Specifically, you indicate that your employer holds several social events during the year (e.g. Christmas party, summer BBQ) that are generally open to all employees and sometimes, depending on the particular occasion, an employee's spouse or guest. However, some of the employees do not work in the same city where the employer's main place of business is located and where the particular social functions are held. In those situations, the employer will pay for the employee's travel expenses (i.e. transportation and overnight accommodations).

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 a request for an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, "Advanced Income Tax Rulings", dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the internet at http://www.cra-arc.gc.ca. Where the particular transactions are complete, the inquiry should be addressed to the relevant tax services office, a list of which is available on the "Contact Us" page of the CRA website. Although we cannot comment on your specific situation, we are prepared to provide the following comments in respect of the issues that you raised. Please note, however, that these comments are of a general nature only and are not binding on the CRA.

Our Comments

Paragraph 6(1)(a) of the Income Tax Act (the "Act") includes in a taxpayer's income the "value of board, lodging and other benefits of any kind whatever received or enjoyed by the taxpayer in the year 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.

For example, in Dunlap v The Queen, 1998 DTC 2053 (TCC), the court considered whether an employee had received a taxable benefit where the employee and the employee's guest attended a Christmas party that was paid for by his employer. In finding that the employee did in fact receive a taxable benefit the court noted the following:

"I accept that the term "advantage or benefit" can be interpreted in a manner which does not include the recipient of a cup of coffee and that to constitute a benefit worthy of measurement, it needs to be a "material economic advantage". The benefit in this case cannot be equated with a cup of coffee or the occasional free lunch or dinner. It was an additional way in which this employer chose to recognize and remunerate his employees for their loyal services. It was not a trivial advantage which failed to satisfy the provisions of paragraph 6(1)(a) of the Act."

The CRA recognizes the administrative burden for employers when dealing with employee benefit issues and in response to the above-noted court decision developed an administrative policy for employer-paid special events which can be found in Income Tax Technical News #15. A description of the CRA's policy on gifts, awards and social events can also be found at the following website link: http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/bnfts/gfts/menu-eng.html.

The CRA will generally not assess a taxable benefit to an employee for attending an employer-provided social event where the particular social event is "generally available to all employees" and the cost per employee is reasonable in the particular circumstances. It is our view that the phrase "generally available to all employees" means a social event for all employees in an employer's particular place of business, which could mean a branch or division depending on the circumstances.

The determination as to whether a particular amount is reasonable or not remains a question of fact that can only be determined on a case-by-case basis, however, as a general guideline, where the particular social event does not cost the employer more than $100 per person, such amount will be considered reasonable and will not result in a taxable benefit. The costs to the employer for this purpose would typically be the cost of the food, entertainment, hall rental and other similar costs that were incurred by the employer to hold the event. Social events costing more than $100 per person are generally considered to be beyond the "privilege" point and may result in a taxable benefit.

In addition, depending on the particular circumstances, reasonable ancillary costs, such as transportation to and from the employee's home, would increase the $100 per person guideline. These costs are likely to be higher for an out-of-town employee, but we would anticipate that in making such a trip, the employee would take the opportunity to combine work-related matters with attending the social function. If ancillary costs are not reasonable then they would be taxable under paragraph 6(1)(a) of the Act. Ancillary costs cannot be treated as a tax-free gift or award under our administrative policy for non-cash gifts and awards.

In circumstances where an employee is allowed to bring his/her spouse or guest to the social event, provided the event cost does not exceed $100 per person as described above no taxable benefit will normally be assessed to the employee in respect of the cost for the employee's spouse or guest. However, any ancillary costs attributable only to the employee's spouse or guest that are paid by the employer (such as airfare) would generally result in a taxable benefit to the employee.

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