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 the value of an award is included in the employee recipient's income?
Reasons: The award appears to be a benefit received in respect of, in the course of, or by virtue of employment.
December 30, 2013
Re: Employee award
We are writing in response to your letter dated August 15, 2013, concerning an award provided to your employees.
You described an employer-provided award that is available to adult employees who are parents and continuously employed throughout the competition period with the employer. An employee may only be nominated by another employee or member of the public. There is no limit to the number of nominees XXXXXXXXXX, but there are only XXXXXXXXXX award winners. Nominees are judged based on their extraordinary and positive impact on others in their life, their family's life, their community, or the environment. A judging panel, chosen by the employer, evaluates submissions over XXXXXXXXXX rounds.
The award includes $XXXXXXXXXX cash. Further, and in order for the employee (and the employee's nominator) to attend the award event, the award also includes the following items:
The approximate retail value of the total award is over $XXXXXXXXXX.
In addition, the employer makes a donation in the employer's name to each award winner's registered charity of choice. The top award winner's charity receives $XXXXXXXXXX. Each of the XXXXXXXXXX remaining award winners' charities receives $XXXXXXXXXX. The award winners receive no economic benefit from the donation since it is the employer that is entitled to the income tax deduction associated with the donation.
You enquired whether the value of the award must be included in the recipient's employment income under the Income Tax Act ("Act").
This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, Advance Income Tax Rulings.
Paragraph 6(1)(a) of the Act includes the following in a taxpayer's employment income:
the value of board, lodging and other benefits of any kind whatever received or enjoyed by the taxpayer, or by a person who does not deal at arm's length with the taxpayer, in the year in respect of, in the course of, or by virtue of the taxpayer's 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. The Federal Court of Appeal in the case of Her Majesty the Queen v. Eugene Joseph Blanchard (95 DTC 5479) opined as follows:
in interpreting paragraph 6(1)(a). Parliament, has added the phrases "in the course of" and "by virtue of", to the phrase "in respect of" in order to emphasize that only the smallest connection to employment is required to trigger the operation of the section."
Generally, an award that an employer provides to an employee is considered a taxable benefit from employment and is included in employment income under paragraph 6(1)(a). For more information on gifts and awards received in respect of employment, go to www.cra.gc.ca/gifts.
It is a question of fact whether a particular award is considered connected to the recipient's employment. However, in our view and in this situation, the award appears to be connected to the recipient's employment since it is provided by his or her employer and is only available to employees. The award, therefore, should be included in the recipient's employment income under paragraph 6(1)(a) of the Act because it appears to be a benefit received in respect of, in the course of, or by virtue of an office or employment. In addition, the value of the items provided to the nominator should be included in the nominator's employment income if he or she is also an employee; or the recipient's employment income if the nominator is not an employee and not dealing at arm's length with the recipient. For information on the criteria used to determine whether or not persons deal with each other at arm's length under the Act, refer to Interpretation Bulletin IT-419R2, Meaning of Arm's Length.
We trust our 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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