25 August 1993 External T.I. 9311615 F - Employment Benefits - Free Passes

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.

XXXXXXXXXX 

Attention:  XXXXXXXXXX

Dear Sirs:

RE:  City Employees Use of Public Recreation Facilities

This is in reply to your letter of April 22, 1993 in which you requested clarification as to Revenue Canada's position with respect to the application of paragraph 6(1)(a) of the Income Tax Act (the Act) in a situation where certain individuals receive complimentary XXXXXXXXXX passes. We regret the delay encountered in providing you with a response.

You describe a situation in which passes, giving recipients free access to XXXXXXXXXX facilities such as community centres, swimming pools, skating rinks and golf courses, are issued to XXXXXXXXXX, elected municipal officials, senior municipal and XXXXXXXXXX, retired employees and certain other "special-status" individuals. You indicate that the pass provides unlimited access to all the above-noted facilities other than golf courses where the pass holder may be restricted to four visits per month.

In your analysis you make reference to the comments contained in paragraph 33 of Interpretation Bulletin IT-470R "Employees' Fringe Benefits" (the bulletin) which reads as follows:

"Where employees generally are permitted to use their employer's recreational facilities (e.g., exercise rooms, swimming pools, gymnasiums, tennis, squash or racquetball courts, golf courses, shuffle boards) free of charge or upon payment of a nominal fee, the value of the benefit derived by an employee through such use is not normally taxable..."

You also make reference to paragraph 34 of the same bulletin which reads as follows:

"Similarly, where the employer pays the fees required for an employee to be a member of a social club the employee is not deemed to have received a taxable benefit where the membership was principally for the employer's advantage rather than the employee's..."

It is your view that the principles set out in these paragraphs have application to the situation described above.

It has been the Department's position that, in order for the use of the employer's recreational facilities at a nominal or no charge not to be considered a benefit in the hands of a particular employee, those same facilities must be available to employees generally. Where certain select groups or categories of employees are given the privilege of using employer recreational facilities at no/low cost for which other employees in the organization would be required to pay full price (as any other client of the organization), then the Department considers that a benefit is being conferred on those employees that have been given the advantage. Consequently, it is our view that the position set out in paragraph 33 of the bulletin does not have application to the situation you describe.

Paragraph 34 of the bulletin, to which you refer, sets out the principle that where the employee is provided free or low cost access to recreational facilities primarily so that he/she is better able to carry out the specific duties of employment for the benefit of the employer, with only a secondary and incidental benefit being derived by the employee, then the benefit so derived would not be considered taxable in the hands of that employee. In the situation you describe, it would appear that the free passes are being provided not only to individuals directly concerned with the operation of the facilities and those that may have substantial influence in their management but also to individuals such as retired employees and special-status individuals who have no such concerns or influence. Passes are being given to municipal and XXXXXXXXXX solely on the basis of their having XXXXXXXXXX or more years of service regardless of their function but do not appear to be given to XXXXXXXXXX with less than XXXXXXXXXX years of service that are directly involved with the operations and maintenance of the XXXXXXXXXX facilities. Consequently, we must conclude that the passes are not being distributed principally for the benefit of the employer but rather for the recreational benefit of certain individuals or groups of individuals.

Where the benefit is determined to be taxable, you raise the question as to its valuation. Paragraph 6(1)(a) of the Act requires that the "value" of benefits be included in the employee's income. Unless specifically noted otherwise the value referred to is interpreted as being the fair market value. The noted exceptions are set out in the bulletin and referred to in your letter. In the case of the XXXXXXXXXX passes, since those municipal employees not provided with passes would be required to pay regular admission prices for access to each of the facilities then the fair market value of the benefit in each case would be the admission price less any amount required of the passholder to be paid in conjunction with the presentation of the pass.

We hope that our comments will be of assistance to you.

Yours truly,

P.D. Fuoco for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch

c.c.      Source Deductions Division Client Assistance Directorate Assessment of Returns Directorate