27 October 1998 Internal T.I. 9827766 - TAXABLE BENEFITS - RECREATIONAL FACILITIES

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: Taxability of free passes to a Municipalities recreational facilities.

Position: No taxable benefit.

Reasons: If passes are provided to all employees for use of the employer's recreational facilities, the situation will meet the requirements of paragraph 33 of IT-470R.

		October 27, 1998

	Revenue Collections Directorate	HEADQUARTERS
	Trust Accounts Division	Karen Power, CA
(613) 957-8953
	Attention:  Allan MacDonald
		982776

Taxable Benefits - Recreational Facilities

We are writing in response to a telephone enquiry (Power/McDonald) in which you requested our views with respect to whether employees in the following situations would receive an employment benefit taxable under paragraph 6(1)(a) of the Income Tax Act (the “Act”).

The situations as we understand them are as follows:

a) A municipality issues passes to their employees for free usage of the municipalities recreational facilities (ie. golf course or tennis courts).

b) The passes described in a) are also provided to the employees’ family members.

c) The municipality enters into a reciprocal agreement with a ski hill. Whereby, the municipality employee’s would be granted free passes to the ski hill, in exchange for free passes provided to the ski hill employees for use of the municipalities recreational facilities.

Our Comments

While paragraph 6(1)(a) of the Act generally requires an employee to include in income the value of any benefit received or enjoyed in respect of, in the course of or by virtue of employment, certain exceptions exists. In addition to statutory exceptions, paragraph 33 of Interpretation Bulletin IT-470R “Employees’ Fringe Benefits” sets out the Department’s position with respect to employer provided recreational facilities.

Paragraph 33 of Interpretation Bulletin IT-470 provides that, in order for the use of an employer's recreational facilities (e.g., exercise rooms, swimming pools, gymnasiums, tennis, squash or racquetball courts, golf courses, shuffle boards) at nominal or no charge not to be considered a taxable benefit in the hands of an employee, those same facilities must be available to employees generally. If certain select groups or categories of employees are given the privilege of using employer recreational facilities at no/low cost for which other employees in the organization would be required to pay full price (as well as any other client of the organization), then the Department considers that a taxable benefit is being conferred on those employees that have been given the advantage.

A further factor to be considered in this context is found in paragraph 34 of IT-470R and paragraph 12 of IT-148R2. When an employee is provided free or low cost access to social or athletic clubs primarily so that he/she is better able to carry out the specific duties of employment for the benefit of the employer, with only a secondary and incidental benefit being derived by the employee, then the benefit so derived would not be considered taxable in the hands of that employee.

In order for the benefit derived by an officer or employee from the use of employer-owned recreational facilities to be considered a non-taxable benefit, all employees generally must be provided access to those facilities. Where access is limited to certain employees the benefit would be considered taxable in their hands. This position extends to the usage of such passes by dependants of the employee. You should note, that we have never been exposed to a scenario where free passes were offered to all employees, as a result taxable benefits have been included in the recipient’s income.

In our view, provided that all employees have access to the Municipalities facilities, the passes provided in situation 1 & 2 would not be considered taxable in the employee’s income.

However, the passes provided in situation 3 are not for the use of the employer’s recreational facilities and in our view the position set out in paragraph 33 of IT-470R does not have application in this reciprocal agreement.

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

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