23 March 1999 External T.I. 9906905 - EMPLOYEE AWARD PROGRAM

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: Employer has a program which provides an internal currency, award credits, used to recognize employees. Award credits are earned by making suggestions to improve the business, by demonstrating extraordinary customer service, as awards for outstanding job performance, etc. Each award credit has a monetary value. The program provides a banking system and a multitude of redemption options, including gift certificates, merchandise, and travel. Are awards for this program taxable to the employee at the time the employee receives the award credits or when the employee actually exchanges the award credits for the award?

Position: The taxation of the benefit occurs at the time the award credits are redeemed by the employee for merchandise, travel, gift certificates, etc.

Reasons: Similar position taken in other files

XXXXXXXXXX 	G. Moore
		990690
March 23, 1999

Dear XXXXXXXXXX:

Re: Employee Award Program

This is in reply to your letter of March 12, 1999, in which you requested our comments regarding whether an employer is required to include in an employee’s income an amount received as a non-monetary award.

As we understand the situation, XXXXXXXXXX has a program which provides an internal currency, award credits, used to recognize employees. Award credits are earned by making suggestions to improve the business, by demonstrating extraordinary customer service, as awards for outstanding job performance, etc. Each award credit has a monetary value. The program provides a banking system and a multitude of redemption options, including gift certificates, merchandise, and travel. You are asking whether the awards for this program become taxable to the employee at the time the employee receives the award credits or when the employee actually exchanges the award credits for the award.

Our Comments

Written confirmation of the consequences inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request. However, we are prepared to provide the following comments which are of a general nature and are not binding on the Department.

Paragraph 6(1)(a) of the Income Tax Act (“the Act”) provides that income from employment includes “the value of board, lodging and other benefits of any kind whatever received or enjoyed by the taxpayer in the year in respect of, in the course of, or by virtue of an office or employment, ...” Since the award credits of this program are based on performance, in our view, the employee awards you describe would be taxable benefits in the employee’s hands. An employee in receipt of a non-cash award is required to include the fair market value of such an award in income as a taxable benefit. With respect to the timing of the taxable benefit, it is our view that the taxation of the benefit occurs at the time the award credits are redeemed for gift certificates, merchandise and travel. There may be no withholdings on cash or non-cash awards up to $500 but they are still required to be reflected on T4 slips at year end.

We trust our comments will be of assistance to you.

Yours truly,

R. Albert, C.A.

for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch