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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
The taxability of meal reimbursements or allowances under circumstances where the entitlement to the benefit, where the overtime is "irregular" and the entitlement is triggered after 2 hours of overtime worked.
Position TAKEN:
Taxable unless established criteria are met, including a minimum three hours of O/T worked immediately after regular hours of work and infrequency of overtime.
Reasons FOR POSITION TAKEN:
Administrative policy intended to not tax as a benefit where employee unavoidably incurs additional costs.
942811
XXXXXXXXXX J.A. Szeszycki
Attention: XXXXXXXXXX
January 24, 1995
Dear Sirs:
Re: Meal Allowances for Overtime
This is in reply to your letter of October 27, 1994 in which you requested our views on the taxability of meal benefits received by employees under three different sets of circumstances. You also requested clarification of positions taken in a previous letter on the subject issued by this Directorate.
In your letter you set out three sets of circumstances in which the employer provides either meals or meal allowances to its employees who are requested to work overtime. We will comment on the different situations in the order presented.
1) An employer has both union and non-union employees. Employees from each of these categories are sometimes requested to work overtime. It is the employer's policy for non-union employees, and it is included in the union agreement for the union employees, that if the employees work more than two hours overtime, the employer will reimburse the employee the cost of his meal to a maximum of $8 provided that he submit a receipt for it. The $8 limit has been determined to be the average cost of a normal meal including taxes and tip. The occurrence of overtime is irregular. Is there a taxable benefit to the employee?
It should be emphasized at the outset that, under paragraphs 6(1)(a) and (b) of the Income Tax Act, the subsidization of or the provision of meals by an employer is considered to be a taxable benefit to the employee. The Department, however, has taken an administrative position whereby, under certain conditions, the benefit will not be required to be included in income. Where the meals or allowances are provided in connection with a requirement to work overtime, the Department has established the criteria for the non-inclusion of the benefit in the employee's income. The value of the benefit does not have to be included in income where (i) the employee works three or more hours of overtime immediately following their scheduled hours of work, (ii) the amount is reasonable (not greater than the value or cost of a normal meal), and (iii) the overtime is infrequent or occasional in nature.
Consequently, in the circumstances set out in (1) above, while the second criterion appears to have been met, for those employees who work less than three hours immediately following their regularly scheduled work hours, criterion (i) will not have been met and the allowance would be required to be included in income.
2) To reduce the cost of administration of the volume of receipts being submitted, the employer decides to give meal chits to employees who work more than two hours of overtime. The chits, having a value of $8 or less, can be used in the cafeteria or in nearby restaurants. The $8 limit has been determined to be the average cost of a normal meal including taxes and tip. The cafeteria or the restaurants then submit the cashed chits to the employer who pays them. The occurrence of overtime is irregular. Is there a taxable benefit to the employee?
It is our view that the use of chits, which can only be exchanged for meals, up to a value no greater than the average cost of a normal meal, is equivalent to a reimbursement for overtime meals if the chits are used on the day that the overtime was worked. Chits that can be exchanged on any subsequent day fall outside the intent of the administrative position.
Our comments in (1) above relating to the hours of overtime also apply in this situation. Those employees who work at least three hours of overtime immediately following their regular hours of work and use the chit on the day of the worked overtime, would not be required to include the value of the used portion of the chit into income.
3) In order to further reduce the cost of administration of overtime meals, the employer decides to give the employees through its payroll a meal allowance of $8 when the employee works more than two hours of overtime. It is the employer's policy for non-union employees and it is included in the union agreement for union employees. The occurrence of overtime is irregular. Is there a taxable benefit to the employee? Would the answer be different if the employer had two different union agreements and one union agreement provided for an $8 meal allowance and the other provided for a $6 meal allowance? The $8 limit would be the average cost of a normal meal including taxes and tip, but the company would have been able to negotiate a lower allowance with one of its unions.
The Department's administrative position regarding the tax treatment of overtime meal benefits is intended to recognize that on occasions where an employer, without sufficient notice (unscheduled), has required an employee to continue working past the normal work hours and the overtime is of sufficient duration that it is reasonable to assume that the employee requires a normal meal in order to continue working effectively, the employee will incur a cost that is greater than would normally be incurred if the employee returned home after his/her regular workday. It is intended to recognize that the added cost is unavoidable for the employee and the actual benefit enjoyed is minimal. It is our view that where the overtime is less than three hours the employee could normally make alternate arrangments concerning the meal.
In addition, where the benefit takes the form of a non-accountable meal allowance and the entitlement to the allowance does not rely on the employee actually taking a meal, the allowance takes on the characteristic of additional remuneration rather than a reimbursement of an imposed expense. Such is generally the case where a collective bargaining agreement provides for the payment of such allowances. In a non-unionized situation, we would have the same concern if the employer's policy were to provide a meal allowance without a requirement to use the funds to purchase a meal.
Consequently, in situation (3) the same comments apply regarding duration the of the overtime as were made for situations (1) and (2). Unless the union agreement or employer policy requires the meal to be consumed at the time of the overtime, the allowance would be considered as additional remuneration to be included in the employee's income. Our response would not differ if the meal allowance varied between union contracts. The amount of the allowance would not be considered unreasonable in itself as long as it did not exceed the average cost of a normal meal.
We hope our comments clarify the Department's position in this matter.
Yours truly,
P.D. Fuoco
for Director
Business and General Division
Rulings Directorate
Policy and Legislation Branch
c.c.Source Deductions Division
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