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 opts to forego a non-cash gift valued over $500 that he or she is otherwise entitled to and directs the employer to make a cash gift of a specified amount to a specified registered charity?
Reasons: See response.
March 13, 2014
Re: Employment benefit
We are writing in response to your email of November 1, 2013, wherein you requested our comments on the tax implications of a charitable donation made in lieu of a long-service award. More specifically, you have asked us whether an employee will realize a taxable benefit if the employee opts to forego a non-cash gift valued over $500 that he or she is otherwise entitled to receive and directs the employer to make a cash gift of a specified amount to a specified registered charity.
This technical interpretation provides general comments about the provisions of the Income Tax Act (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 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 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. The administrative policy is available on the CRA website at www.cra.gc.ca/gifts.
The determination of whether a benefit arises under paragraph 6(1)(a) of the Act when an employee opts to forego a non-cash gift valued over $500 that he or she is otherwise entitled to, and directs his or her employer make a cash gift of a specified amount to a specified registered charity, is a question of fact. Even though a benefit may not arise under paragraph 6(1)(a), subsection 56(2) may still apply.
Subsection 56(2) of Act requires an amount or benefit not received or enjoyed by a taxpayer to be included in his or her income if all of the following conditions are met:
- there is a payment or transfer of property to a person other than the taxpayer;
- the payment or transfer of property is made pursuant to the direction or with the concurrence of the taxpayer;
- the payment or transfer of property is for the benefit of the taxpayer or for the benefit of another person whom the taxpayer desired to benefit; and
- the payment or transfer of property would have been included in the taxpayer's income if it had been received by the taxpayer.
Generally, we are of the view that where a taxpayer 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 income of that taxpayer to the extent that it would have been if it were received by 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.
Therefore, in light of the fact that the first $500 of a non-cash long-service award would have been non-taxable if it were received by the employee, it is our view that only the amount of the donation that exceeds $500 would be required to be included in the employee's income.
We trust that these comments have been of assistance.
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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