23 September 1997 External T.I. 9721605 - MUNICIPAL ELECTED OFFICIAL EXEMPTION

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:

Whether any part of amount paid to a "management body" board member is tax-free municipal elected official allowance.

Position:

Not enough information & must be determined by TSO.

Reasons:

Tax consequences attaching to past payments to be confirmed by TSO; more info re legislation authorizing the payments and whether deemed to be an expense allowance.

XXXXXXXXXX 972160

Attention: XXXXXXXXXX

September 23, 1997

Dear XXXXXXXXXX:

Re: Fees Paid to Board Members

This is in reply to your letters of March 13, 1997 and August 6, 1997, to the XXXXXXXXXX Tax Services Office, asking the Department to confirm that certain amounts paid to members of the board of the XXXXXXXXXX are properly characterized as amounts taxable pursuant to paragraph 6(1)(c) of the Income Tax Act (the "Act"). The alternative tax treatment suggested by the board members is that the amounts are described in subsection 81(3) of the Act and that, therefore, all or a portion are exempt from tax.

It is the function of the tax services office to determine if amounts have been properly reported by the XXXXXXXXXX and by the recipients of the amounts and we can therefore only provide general comments concerning paragraph 6(1)(c) and subsection 81(3) of the Act. We will provide a copy of our reply to the XXXXXXXXXX Tax Services Office in order to assist them in responding to your request.

Paragraph 6(1)(c) of the Act requires that director's or other fees received in respect of, by virtue of, or in the course of an office or employment be included in the recipient's income in the year of receipt.

Subsection 81(3) of the Act provides that all or a certain portion of an allowance for expenses received by certain officers or board members is not included in the recipient's income if certain conditions are met. The conditions relevant to the situation described by you are:

• the recipient must be an officer of a municipal utilities board, commission or corporation or any other similar body, the incumbent of whose office as such an officer is elected by a popular vote;
• the amount must be paid by the body of which the person was an officer; and
• the allowance must be for expenses incident to the discharge of the person's duties.

With respect to the first condition, it is our general position that a board, commission, etc. that is established by a province is not a municipal board, commission or corporation but could be a "similar body" provided that it can be regarded as being akin or equivalent to a body established at the municipal level of government. Once this is verified it must also be confirmed that the member of the body became such a member either by election by popular vote directly into the position, by becoming a member ex officio because of an election by popular vote to some other body, or by being elected by popular vote for the purpose of being appointed to a similar body.

The second condition is self-explanatory. In your case, the amount must be paid by the XXXXXXXXXX.

With respect to the third condition, an allowance in our view means any periodic or other payment that an employee receives from an employer, in addition to their salary or wages, without having to account for its use. As further explained in the enclosed Interpretation Bulletin IT-292 at paragraphs 4 and 5, an allowance is the non-accountable payment the employer is authorized to make to a member which is received by him because of his position and not for any specific duties and also includes a non-accountable allowance the employer pays for travelling to and from meetings. Reimbursements for expenses claimed by the member are not allowances.

With respect to the calculation of the amount of any expense allowance which may be excluded from income, please note paragraphs 6 and 7 of Interpretation Bulletin IT-292, which discuss the two possible methods.

In order to assist the XXXXXXXXXX Tax Services Office with its determination, you should provide it with copies of the legislation which authorizes the XXXXXXXXXX to pay its members and which identifies the purpose of such payments. If there is a provision in the applicable law which deems a certain portion of the amount paid to a XXXXXXXXXX member to be an expense allowance (as discussed in paragraph 6 of the Interpretation Bulletin), a copy of this legislation should also be provided.

We trust our comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

Encl.