21 April 1999 Internal T.I. 9905737 - TAXABLE BENEFIT, TRIP PAID BY EMPLOYER

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: Where a trip has been awarded to a principal dealer of a car dealership and is then given to an employee of the dealer, is the employee considered to have received a taxable benefit by virtue of his or her office or employment by virtue of paragraph 6(1)(a) of the Act?

Position: Question of fact. The essential question is whether on the facts, the trip is primarily for business or pleasure.

Reasons: Position taken in similar files

							April 21, 1999

	Toronto West Tax Services Office	HEADQUARTERS
M. Taddeo					G. Moore
	4th Floor, 77 City Centre Drive	952-1506

							7-990573

Taxable Benefit - Subsection 5(1) and Paragraph 6(1)(a) of the Income Tax Act

We are writing in reply to your correspondence of March 2, 1999, in which you asked for our opinion concerning the court case of Richard Romeril v. The Queen, 97-3314(IT)I. You have also asked if the case is appealed or is currently under appeal.

Our Comments

Under the Informal Procedure of the Tax Court of Canada, in the case of Richard Romeril v. The Queen, the taxpayer and his wife took a trip to Europe at the expense of General Motors of Canada Ltd. and the Minister included the value of the trip in the taxpayer's income as a taxable benefit pursuant to paragraph 6(1)(a) of the Income Tax Act ("the Act"). The issue under appeal is whether the value of the trip is income from employment. The taxpayer was employed as a General Manager of a large General Motors dealership in Calgary. The dealership was solely owned by Mr. Shaw, an entrepreneur, who was seeking to groom someone to be his successor and ultimately sell his shares in the dealership business to this successor. Mr. Shaw also wanted to expand his dealership through the acquisition of another large General Motors dealership and merging of the two dealerships. As the sale of a dealership requires the approval of General Motors management, Mr. Shaw sought to ensure that senior GM management would be favourably disposed to his plans. Because of a successful dealership sales record for 1994, the dealership won the right to send two dealership representatives to a convention in the south of France that would be attended by GM head office executives. Mr. Shaw chose to send the taxpayer and his wife as the dealership representatives to the GM convention as he was the best candidate to be taken into an ownership position with the dealership and he would be the manager of the new merged dealership. The convention was a one week event that included sightseeing and a cruise. The taxpayer testified that meal times were entirely devoted to work-related topics and there were some organized functions of an entirely business nature. Although the taxpayer's wife did not participate in discussions about management, the Court found that her attendance at the convention was for business-related reasons. The Court also found that, based on the facts of the case, the primary reason for the taxpayer's attendance at the convention was as part of his fulfilment of his duties as general manager of the dealership and that the principal purpose of the trip was for business. Accordingly, the value of the trip was not found to give rise to a taxable benefit to the taxpayer, pursuant to paragraph 6(1)(a) of the Act. We would like to point out that the Tax Court of Canada Act provides that a judgment under the Informal Procedure shall not be treated as a precedent. As the case of Richard Romeril v. The Queen was under the Informal Procedure of the Tax Court of Canada, the judgment is not treated as a precedent and therefore, would not apply to any other taxpayers. It is our understanding that this case is not currently under appeal because the judgment has no precedential value and was based largely on the facts of the case.

It is the Department's general position that where a trip has been awarded to a dealer and is taken by an employee of the dealer, the employee is considered to have received a taxable benefit by virtue of his office or employment and the benefit must be included in the employee's income by virtue of paragraph 6(1)(a) of the Act. In addition, if a trip is also awarded by the dealer to a family member of an employee, the employee is considered to have received a taxable benefit by virtue of his office or employment and the benefit must be included in the employee's income by virtue of paragraph 6(1)(a) of the Act. The taxable benefit may be reduced if there is conclusive evidence to show that the employee was involved in business activities for the employer during the trip. In a situation where there is conclusive evidence that an employee's presence is required for business purposes and this function is the main purpose of the trip, no benefit will be associated with the employee for the value of the employee's trip. The taxable benefit relating to the value of a family member's trip may similarly be reduced (as discussed below). We note that there are numerous court cases on this issue and we refer you to the following cases, which may be of interest: Lowe v. The Queen (96 DTC 6226), Hart v. The Queen (82 DTC 6237), Philp et al. v. M.N.R. (70 DTC 6237), Ferguson v. M.N.R. (72 DTC 1097), Lougheed v. M.N.R. (72 DTC 1487), Marossi v. M.N.R. (80 DTC 1693), Affettuso v. M.N.R. (81 DTC 389), and Gancher v. M.N.R. (78 DTC 1005). Although the judgments in these cases were based largely on a finding of fact, the essential question addressed by the courts is whether on the facts, the principal purpose of the trip was business or pleasure.

We would like to point out that there is a difference between conventions and conferences and incentive award trips since conventions and conferences are generally planned primarily for business purposes. However, in each case, whether the trip given to the employee by the employer is in respect of a convention, conference, or incentive award trip, the business aspect or the personal benefit must be identified and measured with some reasonableness. It is our general view that where an employer requires an employee to attend a convention or meeting as part of the duties of employment and pays the cost involved or reimburses him for reasonable costs incurred in so doing, such payment or reimbursement would not normally constitute income in the hands of the employee.

Where an employee's spouse accompanies the employee on a business trip, the payment or reimbursement by the employer of the employee's spouse's travelling expenses is a taxable benefit to the employee unless the spouse went on the trip at the request of the employer and it can be established that the main purpose of the spouse's attendance was to assist in attaining the business objectives of the trip. In Vernon C. Hale v. M.N.R., 68 DTC 5326, Mr. Hale was a manager of an Ontario branch of a life insurance company who attended a sales conference for the company's personnel in Phoenix, Arizona. Such conferences were arranged periodically by the company for the purpose of increasing sales by instructing staff on better selling techniques. Extensive evidence was introduced to show the importance placed by the company on the role of the wife of each member of the sales staff. It was shown that the company did not hire a married applicant as a salesman if the salesman's wife did not meet the company's standards, that the company took active steps to foster the wife's participation in her husband's career, that the company considered the wife's attendance at the sales conference essential, that the wife was expected to broaden her knowledge of her husband's business by attending all instructional meetings at the conference and that she was expected to act as a hostess at informal gatherings arranged by her husband for his colleagues and their wives at the conference. Mr. Hale's wife accompanied him on the trip and her expenses were paid by the company. The Minister included in Mr. Hale's income a benefit from employment arising from the payment of his wife's trip expenses by his employer. The Court found that the evidence established conclusively that the conference was held predominantly for business purposes and that Mr. Hale's wife participated therein. In this case, the Court found that the payment by the employer of Mrs. Hale's travelling expenses was not a taxable benefit to the employee because the spouse went on the trip at the request of the employer and it was established that the main purpose of the spouse's attendance was to assist in attaining the business objectives of the trip.

For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Department's mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version or they may request a copy severed using the Privacy Act criteria which does not remove client identity. Requests for this latter version should be made by you to Jackie Page at 613 957-0682. The severed copy will be sent to you for delivery to the client.

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