11 January 1993 Income Tax Severed Letter 9231915 - Awards and Benefits

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.

923191
XXXXXXXXXX                                 M. Eisner
                                           (613) 957-2138

Attention: XXXXXXXXXX

January 8, 1993

Dear Sirs:

Re: Awards to Employees

This is in reply to your letter of October 22, 1992 in which you requested us to consider the tax consequences of a situation described in your letter.

In the situation with which you are concerned,

                    XXXXXXXXXX

It is also your view that the amount in respect of the realizable value would constitute a "retiring allowance" as defined in subsection 248(1) of the Income Tax Act (the "Act"). As indicated in paragraphs 3 and 6 of the enclosed Information Circular 70-6R2, advance income tax rulings are only issued in respect of proposed transactions. As discussed with you in our telephone conversation (Eisner/XXXXXXXXXX) on November 30, it is not possible to provide an advance income tax ruling since the arrangement with respect to the long service awards has already been put in place. Should you wish to clarify the Department's position in respect of this particular situation, you should contact your local District Taxation Office. We are prepared to offer, however, some general comments which are not related to a particular fact situation.

Our Comments The following comments have been made on the assumption that the awards referred to below have been made by an employer to an employee in respect of a certain time period of service and that he or she continues to be employed by the employer subsequent to the time that an award was made.

In situations where an article of jewellery has been awarded to an employee and the employer purports to retain ownership, it is necessary to review all the relevant facts and documentation for the purposes of determining whether the employer or the employee is the beneficial owner of the asset. It could be argued that the employee would be regarded as being the beneficial owner of the jewellery where he or she is entitled to retain possession of it on a permanent basis. The comments set out below have been made on the assumption that this is in fact the case. It is our view that, in such circumstances, the employee would be considered to have received a taxable benefit under paragraph 6(1)(a) of the Act at the time of the award. Similarly, it is also our view that if the employer subsequently incurs an expense in adding to the value of the article of jewellery that was previously awarded, the employee would also be considered to have received a benefit pursuant to paragraph 6(1)(a) of the Act at that time. Consequently, the value of the benefit would not form part of the retiring allowance package at the time of cessation of employment.

As to your comments regarding the value of the benefit, it is our view that the value of a benefit provided to an employee in respect of an article of jewellery would not necessarily be determined by reference to the amount that an employee could realize if he were to sell the particular item on the open market. While the determination of the fair market value of the benefit involves a question of fact, the fair market value of an article of jewellery would ordinarily be considered to be no less than the expense incurred by the employer. It is also our view that the employer would be entitled to deduct an expense incurred in respect of such a benefit in the taxation year in which the employee receives the benefit.

The opinions we have provided you represent our interpretation of the law as it applies generally and do not constitute an advance income tax ruling.

We trust our comments will be of assistance to you.

Yours truly,

J.A. Szeszycki for Director Business and General Division Rulings Directorate Legislative and Intergovernmental Affairs Branch

cc: Calgary D.O.