26 May 1995 External T.I. 9500565 - TAXATION OF MEMBERS OF PARLIAMENT QUERIES

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:

queries why a taxable benefit does not arise when a political party pays for or reimburses a member of Parliament for an expense incurred in performing the duties required of a parliamentarian. The Canada Elections Act stipulates that parties can only incur expenditures that qualify under the def'n of an election expense. Writer concludes that the Department considers "improper" payment by a political party to its member as non-taxable.

Position TAKEN:

An out-of-pocket expense incurred by reason of one's office or employment which is reimbursed by an employer, a person related to the employer or by a person not related to the employer, is not incuded in income. Courts have held that neither the source of a taxpayer's income nor the means taken to earn it are relevant when determing whether an amount is subject to taxation. There is no statutory authority that would exempt an allowance paid by a political party to a member of Parliament (an allowance unless exempted by statue is required to be included in income it it is rec'd or enjoyed by an employee or officer in the year in respect of, in the course of, or by virtue of the employee or officer's office or employment

Reasons FOR POSITION TAKEN:

		950056
XXXXXXXXXX	Sandra Short

May 26, 1995

Dear XXXXXXXXXX:

Re: Taxation of Members of Parliament

This is in reply to your letters of January 6 and March 20, 1995 which query the taxability of certain payments made by political parties to their members.

In your January letter, you have questioned why a taxable benefit does not arise when a political party pays for or reimburses a member of Parliament for an expense incurred in performing the duties required of a parliamentarian. You have questioned this position given that a member of Parliament is not an employee of the political party that he or she represents nor is the political party legally liable to pay the expense in question. In your most recent correspondence, you have stated that The Canada Elections Act stipulates that political parties may only incur expenditures which qualify as an "election expense" which by definition requires that an expense be for the purpose of promoting or opposing directly and during an election, a particular registered party. In light of this, you query whether the Department considers payments by a political party to its members to be non-taxable.

You have also requested that we address another issue relating to Mr. Gravelle's letter of December 13, 1994. You have asked whether the phrase "allowance received for" may be substituted for "reimbursement of" in the following comment: "...where a member seeks to deduct such expenses for tax purposes from the salary received as a member of Parliament, it would be necessary for the member to establish that the expenditure was incurred over and above any reimbursement of that expense."

We respond to your questions in the order presented.

A reimbursement of actual expenses incurred by reason of one's office or employment is not remuneration, a benefit nor an allowance, all of which may, depending on the facts of a case, be includable as income. Whether there is an employer-employee relationship between the payor and payee or whether there exists a legal obligation for the payor to pay the expense or amount that the payor does so pay does not alter this fact. An out-of-pocket expense incurred by reason of one's office or employment which is reimbursed by an employer, a person related to the employer or by a person not related to the employer, is not included in income. However, where an employee or office holder seeks to deduct expenses incurred in the course of an office or employment, it is necessary for that individual to establish that the expenditure was incurred over and above any reimbursement of that expense.

The Income Tax Act does contain a number of provisions which restrict the deductibility of amounts paid out by a taxpayer. The eligibility for deduction does not effect the tax consequences to the recipient of the payment.

An allowance has been defined by the courts as a payment for which the recipient does not have to account; while the amount of an allowance is usually set to cover the expenses which it is intended to cover, the recipient is not obliged to use the allowance for any particular purpose. For this reason, an allowance - unless exempted by statute - is required to be included in income if it is received or enjoyed by an employee or office holder in the year in respect of, in the course of, or by virtue of the employee or officer's office or employment. There is no statutory authority of which we are aware that would exempt an allowance paid by a political party to a member of Parliament. When the individual seeks to deduct an expense for tax purposes, it is not necessary to establish that the expenditure is incurred over and above the amount of allowance which has already been included in income.

We trust our comments will be of assistance to you. Should you have further enquiries you may reach Mr. Paul Fuoco at 1-613-957-2141.

Yours truly,

P.D. Fuoco
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch