24 August 1998 Internal T.I. 9818156 - TAXABLE BENEFITS - POOLING OF FUNDS

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 the employees in receipt of a reimbursement for the purchase of a computer should receive a taxable benefit?

Position: Yes.

Reasons: When the reimbursement by the employer relates to an asset owned by the employee or to personal expense of the employee, the employee benefits from the assistance and is required to include the amount of the reimbursement in income.

		August 24, 1998

	Paul Rémillard	HEADQUARTERS
	Manager, Policy and Technical Services Section	Karen Power, CA
	Trust Accounts Division	(613) 957-8953

	Attention:  Claude Bergevin
		981815

Pooling of Funds

This is in reply to your memorandum of July 10, 1998 concerning the taxation of computer equipment funded by pooled professional development funds and acquired by faculty members.

Our understanding of the facts is as follows:

A. By collective agreement, the College allocates $500.00 per year for every full time equivalent faculty member to departmental professional development funds. These funds may be held in an account for the use of a specific faculty member or may be pooled into a departmental fund to which anyone can apply. This practice varies according to the wishes of the departmental faculty and professional development committees. Any dollars remaining unspent at the end of the fiscal year in these funds are carried forward to the following year.

B. Faculty members apply to these departmental funds for dollars to attend conferences, take courses, etc. They may also apply to the funds to purchase capital equipment such as computers.

C. If a faculty member receives approval to purchase a computer or other capital item, the payment for the item is made from the professional development fund, and the item becomes the property of that faculty member. The College is not responsible in any way for the capital item and has no ownership of it. Ownership as well as operating costs, repairs, insurance, etc. are the responsibility of the purchasing faculty member. A taxable benefit equal to the cost of the capital item, is included on the T4 slip of the faculty member at the end of the year in which the item was purchased.

Specifically, you have asked for our comments on whether a taxable benefit will result in the following two situations.

1. If an entire faculty department or part of a department pooled their funds together to buy one or more computers to be owned by the group, but shared among them, would this be considered a taxable benefit? This equipment could possibly be located in a central location accessible to the group or rotated between individual offices. In the final analysis, however, ownership would remain with the group of faculty, not the college.

2. If an entire faculty department or part of a department turned a portion of their professional development fund back to the College, with the condition that the College use these dollars to buy a computer to be used by the department or group, would this be considered a taxable benefit? In this case, the College would own the computers and be responsible for the operating costs.

Our Comments

A reimbursement is only included in an employee’s income when the reimbursement results in an economic advantage or benefit to the employee. When the reimbursement by the employer relates to supplies consumed directly in the course of employment, there is generally no economic advantage to the employee and no amount is included in the employee’s income.

When the reimbursement by the employer relates to an asset owned by the employee or to personal expense of the employee, the employee benefits from the assistance and is required to include the amount of the reimbursement in income. For example, if the employer reimburses an employee for the cost of a computer that the employee purchased and will continue to own, the employee’s net cost of purchasing the computer is less than it would otherwise have been. Since the employee has received an economic benefit from the employer, the amount of the reimbursement must be included in the employee’s income. This is so even if the employee is required to use the computer in the course of the duties of employment.

In our view, a taxable benefit would result under situation #1 as ownership of the computer remains with the faculty members. A taxable benefit equal to each members pro-rata share of the cost of the computer should be included on their T4 slips. In our view, no taxable benefit would result under situation #2 as the College would have ownership of the computer.

Roberta Albert, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

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