8 May 1996 Internal T.I. 9607447 - PROMOTIONAL BEER

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:

Under a promotional beer scheme, employees are provided with a maximum of XXXXXXXXXX beer a month at no charge. As a consequence of this scheme, have taxable benefits been provided to employees?

Position:

The beer provided to the employees gives rise to taxable benefits.

Reasons: T

he position is consistent with a memorandum issued by this Directorate in 1983 (EC0795).

		May 8, 1996

	Trust Accounts Division	HEADQUARTERS
Mr. Jim Ivey	M. Eisner
	Chief, Policy and Technical	(613) 957-2134
	  Services Section
		960744

Employees' Promotional Beer

This is in reply to your memorandum of February 26, 1996, concerning the above noted subject.

The circumstances we have been asked to consider involve XXXXXXXXXX. In a letter dated January 10, 1996, XXXXXXXXXX has asked for the Department's views on an "employee promotional beer" scheme. Under the scheme, an employee is entitled to a maximum of XXXXXXXXXX beer each month. The beer is considered to be provided to the employees for promotional purposes and is, accordingly, not invoiced to the employees.

In relation to the above circumstances, reference has been made to internal correspondence issued by this Department in respect of the decision rendered by the Federal Court of Appeal in the Molson Newfoundland Brewery Ltd. case. That decision related to federal sales tax. In the correspondence, it has been indicated that, as a consequence of the decision, beer given away free of charge by a manufacturer or producer to employees for promotional or advertising purposes is not subject to federal sales tax. Notwithstanding that the decision was based on the point that advertising and promotion for the employer was involved, it is still necessary, in our view, to determine whether personal benefits are conferred on the employees pursuant to paragraph 6(1)(a) of the Income Tax Act (the Act), as a result of beer provided to the employees under the scheme.

The submission made to us included a copy of a memorandum (EC0795) issued by this Department in 1983. In that memorandum, the opinion was expressed that a reimbursement made to employees in respect of their beer purchases, was required to be included in their incomes from office or employment, notwithstanding the employer's argument that the beer purchases were intended to be of a promotional nature. Consistent with this position, it is our view, that the value of the benefit derived from the beer provided to employees of XXXXXXXXXX must be included in their incomes pursuant to paragraph 6(1)(a) of the Act. If on the other hand, the merchandise had been provided at a discount, the comments in paragraph 27 of Interpretation Bulletin IT-470R would have applied.

The memorandum submitted to us also indicated that it was expected that the beer provided to employees under the promotional beer scheme would essentially be of personal benefit to them and that a reasonable argument could be made that a benefit under paragraph 6(1)(a) of the Act does not arise when beer is distributed at an employer-sponsored event involving all employees (a reception would be an example of such an event). We agree with these comments.

Should you require further technical assistance, we would be pleased to provide our views.

John F. Oulton
Section Chief
Business, Property and Personal Section
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch