5 March 2013 External T.I. 2012-0440821E5 - Non-cash long-service award and cash donation

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 an employee will realize a taxable benefit if the employee foregoes a non-cash long-service award under $500 for a charitable cash donation in a specified amount made by the employer to a specified charity where the employer receives the charitable donation receipt.

Position: No.

Reasons: In light of the facts that the long-service award conferred on the charity would have been a non-taxable non-cash gift if it were received by the employee; the employee, employer and charity are dealing at arms length; the employee does not receive a charitable donation receipt; and the donation is under $500, it is our view that the CRA administrative policy on non-cash gifts and awards would apply providing that the employee would not forego any salary, other compensation or taxable benefits as a result of the donation.

XXXXXXXXXX
N. Pulandiran
2012-044082
March 5, 2013

Dear XXXXXXXXXX:

Re: Employment Benefit

We are writing in response to your letter of March 16, 2012 wherein you requested our comments on the tax implication of a charitable donation made under a long-service award program. More specifically, you have asked us whether an employee will realize an employment benefit if the employee opts to forego a non-cash gift valued under $500 that the employee is otherwise entitled to under the program, with the result that the employer would make a cash gift of a specified amount to a specified registered charity. In this situation, the employee would not receive the charitable donation receipt.

Paragraph 6(1)(a) of the Income Tax Act states that a taxpayer's income from an office or employment shall include "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", with certain stated exceptions. An amount or benefit not directly received or enjoyed by a taxpayer may also be included in his or her income under these provisions under subsection 56(2) of the Act.

Although, there is no provision in the Act that excludes gifts and awards provided to an employee from being subject to tax, the Canada Revenue Agency ("CRA") has an administrative policy that allows an employer to give an employee a non-cash long-service or anniversary award valued at $500 or less, tax free. The award must be for a minimum of five years' service, and it has to be at least five years since the employer gave the employee the last long-service or anniversary award. Any amount over the $500 is a taxable benefit. A complete detail of the administrative policy is available on the CRA website at www.cra.gc.ca/gifts.

Subsection 56(2) of the Act states that "a payment or transfer of property made pursuant to the direction of, or with the concurrence of, a taxpayer to some other person for the benefit of the taxpayer or as a benefit that the taxpayer desired to have conferred on the other person ... shall be included in computing the taxpayer's income to the extent that it would be if the payment or transfer had been made to the taxpayer". The concurrence or participation of the taxpayer in the conferring of the benefit to a third party may be passive or implicit and can be inferred from all the circumstances of a particular situation. This provision is discussed in detail in Interpretation Bulletin IT-335R2 - Indirect Payments, dated July 12, 2004, which is available on the CRA website.

Generally, we are of the view that where an individual directs that an amount to be received from an office or employment be paid directly to a charity, subsection 56(2) of the Act will apply to include that amount in the employment income of that individual in the same manner as if it were paid directly to the individual. However, in light of the facts that the long-service award conferred on the charity would have been a non-taxable non-cash gift if it were received by the employee; the employee, employer and charity are dealing at arms length; the employee does not receive a charitable donation receipt; and the donation is under $500, it is our view that the CRA administrative policy on non-cash gifts and awards would apply providing that the employee would not forego any salary, other compensation or taxable benefits as a result of the donation.

We trust that these comments have been of assistance.

Yours truly,

Nerill Thomas-Wilkinson
Manager
for Director
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch