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 municipal officer can choose to include entire income for tax purposes (rather than 2/3 which is permitted if the province’s Municipal Act has a deeming provision
Position:
Yes, in some circumstances (when no allowance is actually paid)
Reasons:
if no allowance is actually paid in circumstance, then 81(3) does not technically apply. Could find no conclusive evidence that the deeming provisions of the Municipal Act overrides what actually transpires between elected official and employer (see Jurisprudence)
XXXXXXXXXX 972408
Sandra Short
Attention: XXXXXXXXXX
May 15, 1998
Dear Sirs:
Re. Subsection 81(3) of the Income Tax Act (the "Act")
This letter is further to your telephone enquiry of September 9, 1997 (XXXXXXXXXX/Albert). You called to clarify the question originally posed in your correspondence of April 25 and May 21, 1997 concerning the application of subsection 81(3) of the Act. You have asked whether an elected municipal officer in Ontario can include in income the full amount of salary and other remuneration received and be taxed on that whole amount if no expense allowance has been actually paid by the officer’s employer, notwithstanding the deeming provisions found in section 255 of Ontario’s Municipal Act and the Department’s administrative position as found in paragraph 6 of Interpretation Bulletin IT-292 entitled "Taxation of Elected Officers of Incorporated Municipalities, School Boards, Municipal Commissions and Similar Bodies."
In our opinion, an officer may include the full amount of salary and other remuneration received into income for income tax purposes, notwithstanding section 255 of Ontario’s Municipal Act and the Department’s administrative position as found in IT-292, so long as no expense allowance has, in fact, been paid to an elected municipal officer.
Subsection 81(3) of the Act provides that when elected municipal officers and certain other elected members have been paid an amount as an allowance in a year for expenses incident to the discharge of that person’s duties, the allowance is not to be included in computing the person’s income for the year unless the allowance exceeds 1/2 of the amount paid by the employer as salary or other remuneration as such an officer or member. In your situation, no amount is actually paid by the employer as an allowance in the year for expenses incident to the discharge of duties and, therefore, there is no legislative requirement to exclude an amount from income.
Paragraph 6 of IT-292 states that if the Municipal Act of a province deems that a proportion of the total amount paid to an elected member of a municipal council is an allowance for expenses, the Department’s policy is to accept that the proportion deemed to be an expense allowance is an expense allowance, notwithstanding that local bylaws may specifically allocate portions of the total to salary, indemnity, allowance or other remuneration. Section 255 of the Ontario Municipal Act deems one-third of amounts paid to be for expenses incident to the discharge of the duties of such officer or member. While it is the Department’s long existing policy to recognize such deeming provisions, the policy will not be imposed on any elected official who wishes to include the full amount of salary and other remuneration into income when he or she, in fact, has received no amount as an allowance for the discharge of duties.
It is our understanding that the private member’s bill in Ontario known as Bill 73, an Act to amend the Municipal Act, was not passed when the last session of the Ontario Legislature ended on December 18th and, accordingly, will not be passed into law unless the bill is re-introduced and passed in a subsequent sitting of the House.
We have referred your enquiry to the Registered Plans Division so that they may consider possible pension repercussions with respect to The Ontario Municipal Employees Retirement System Act.
We trust our comments will be of assistance to you.
Yours truly,
Roberta Albert, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
c.c. Gary Collier, Registered Plans Division
Bob Levine, Trust Accounts Division
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