1 October 1997 External T.I. 9722825 - NON-MONETARY INCENTIVE AWARDS

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:

Is an employee taxed on the receipt of non-monetary incentive awards. Whether an amount is to be included in an employee's income for an award if the award has a departmental logo permanently affixed or engraved on it.

Position:

Yes. While a logo or engraving may lessen the value of an award, it does not mean an award has no value because of the existence of a logo or engraving.

Reasons: 9710695, 9710616

Fisheries and Oceans Canada
Occupational Safety and Organizational Health
344 Slater Street
Ottawa, Ontario 972282
K1A 0N7

Attention: Mr. Trevor Whitehouse

October 1, 1997

Dear Sirs:

Re: Incentive Summary

This is in reply to your facsimile of August 26, 1997 in which you request information on whether an employer is required to include in an employee's income an amount received as a non-monetary incentive award.

The Department's position is that a gift, either in cash or in kind, from an employer to an employee, is a benefit derived "in respect of, in the course of, or by virtue of" an office or employment and is required to be included in income by virtue of paragraph 6(1)(a) of the Income Tax Act (the "Act"). Similarly, when an employee is rewarded by an employer with merchandise or other non-cash item, the fair market value of the award must be included in the employee's income. If an item is personalized with a corporate or departmental logo or engraved with the employee's name or a message, the fair market value of the item may be negatively affected. In such cases, the amount to be included in the employee's income may be reduced by a reasonable amount, having regard to the circumstances. Depending on the value of a particular award, the existence of a departmental logo may have little, if any, impact on the fair market value of the item. Each situation of this nature should be considered on its own merits. There is no administrative position which provides that so long as the award has a fair market value of less than a defined dollar limit, or so long as a logo is permanently affixed on the award, no amount is required to be included in the employee's income. However, there are situations, such as when the award is a plaque, trophy or other memento of nominal value for which there would be no market, a fair market value does not exist and it is not necessary to include any amount in an employee's income as a taxable benefit. The onus rests with the employer to reasonably determine when a market for a nominal item does not exist.

A gift given by an employer to an employee results in a taxable benefit to the employee. However, as you may be aware the Department does have an administrative position relating to gifts. If the gift (in cash or in kind) is for a wedding, Christmas, or similar occasion and is valued at $100 or less, no amount is required to be included in the employee's income, so long as the employer does not claim the cost of the gift as an expense. The policy applies to one gift per employee per year. Two gifts are permitted in the year an employee marries, as long as one of them is a wedding gift. This administrative position is well publicized and can be found, for example, in both the "Employer's Guide to Payroll Deductions, Taxable Benefits and Non-Resident Information" as well as Interpretation Bulletin IT-470R (enclosed). It is our understanding that there are no plans to expand this position to include incentive awards or similar awards.

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