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 amount paid by an employer to an employee for an employee referral should be included in the employee's employment income?
Reasons: An employee referral fee paid by an employer to an employee is taxable as employment income under sections 5 or 6 of the Act.
February 13, 2013
Re: Employee Referral Fee
We are writing in response to your email of May 22, 2012, concerning the taxation of employee referral fees. More specifically, you have enquired whether an amount paid by an employer to an employee for an employee referral is required to be included in the employee's employment income.
In the situation you described, an employer intends to recruit candidates using an employee referral program. An employee referral program is an internal recruitment method used by organizations to identify potential candidates from their existing employees' social networks. The employer agrees to pay the referring employee a referral fee. At this time, the amount of the referral fee and the terms of the employee referral program have not been established.
Subsection 5(1) of the Income Tax Act (Act) states that a taxpayer's income from an office or employment is the salary, wages and other remuneration, including gratuities, received by the taxpayer in the year. In addition, employees are generally taxable on the value of all benefits received or enjoyed by virtue of their employment under paragraph 6(1)(a) of the Act, subject to certain exceptions.
It is our view that a referral fee paid by an employer to an employee under the employee referral program is required to be included in the employee's employment income under subsection 5(1) or paragraph 6(1)(a) of the Act.
We trust these comments will be of assistance.
Nerill Thomas-Wilkinson, CPA, CA
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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