26 November 1993 External T.I. 9318945 F - Employee Discounts - Sale of Homes to Employees at Discount

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:  Employee Discounts

This is in response to your letter dated June 29, 1993 concerning the comments found in paragraph 27 of Interpretation Bulletin IT-470R, Employees' Fringe Benefits. We apologize for the delay in responding.

You have asked that we consider the application of our current administrative position relating to the sale of merchandise to an employee at a discounted price to the situation of an employer in the residential construction industry selling homes constructed in the ordinary course of business to employees at a discounted price that is not less than the employer's cost. You have stated that the reasons for implementing an employee discount policy in the residential industry are similar to those in the retail industry, that is, to provide an indication of the confidence of a company's employees in the quality of the employer's product and a method for the employer to provide a benefit to company employees.

It is your view that if the discount program is available to all employees and the employee cannot purchase a home for less than the employer's cost that no taxable benefit to the employee should result. Your findings are based on the Department's position concerning employee discounts as discussed in Interpretation Bulletin IT-470R, Employees' Fringe Benefits.

The strict application of paragraph 6(1)(a) of the Act requires the inclusion of all employee benefits into income. Any exceptions to the general inclusion requirements of paragraph 6(1)(a) of the Act are based on administrative convenience (for example certain transportation passes), taxpayer acceptability, general policy objectives (such as relate to clergymen or employees in remote work sites for example) or more specific tax policies (as relate to certain deferred income plans). The comments in paragraph 27 of Interpretation Bulletin IT- 470R reflect an administrative practice of long standing wherein an employer in a merchandising business may sell its merchandise to employees at a discount. In these instances, the benefits that an employee derives from exercising this privilege are not normally regarded as taxable benefits. As the reasoning for not taxing some fringe benefits is non-statutory, we are not inclined to extend this administrative position at this time. Furthermore, it was never intended that the position extend to major capital assets such as a residential property. Consequently, it is our view that where an employer in the construction industry sells a house or other building or a unit in a building from its inventory to an employee at any discount, a taxable benefit will result to that employee.

We trust the foregoing adequately explains the Department's position.

Yours truly,

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

c.c.      Source Deductions Division      A. Bissonnette,      Director