30 December 1999 Income Tax Severed Letter 9930716 - EMPLOYEE AUTOMOBILE PURCHASE PLAN

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:

1. Whether a employee vehicle purchase plan which offers discounts to employees are considered taxable benefits?

2. Whether a $XXXXXXXXXX gas allowance is considered a taxable benefit?

3. Whether employee rebate programs would be considered taxable benefits?

Position:

1. No.

2. Yes.

3. Yes.

Reasons:

1. The vehicle discount programs would be comparable to discounts described it paragraph 27 of IT-470R (Consolidated) to be non-taxable benefits.

2. & 3. The position described in paragraph 27 of IT-470R (Consolidated) would not apply to gas allowances and rebates paid directly to employees. As such these amounts would be considered taxable benefits under paragraph 6(1)(a).

		December 30, 1999

	Pauline Gagnon/Richard Kodybka	HEADQUARTERS
	Employer Compliance Audit	Karen Power, CA
	Verification, Enforcement and	(613) 957-8953
	   Compliance Research Branch
		7-993071

Taxation of XXXXXXXXXX Employee Purchase Plan

We are writing in reply to your request for our comments, concerning whether taxable benefits arise with respect to the XXXXXXXXXX employee purchase plan.

Our understanding of the facts is as follows:

1. XXXXXXXXXX (the employer) has an employee product purchase program to provide XXXXXXXXXX employees and their family members with the opportunity to purchase XXXXXXXXXX Vehicles at a discount price.

2. All active and retired employees, surviving spouses, laid-off employees and family members are eligible to participate in the program.

3. All vehicles purchased under the program must be for the personal use of the eligible purchaser and the vehicle must be retained for a minimum of six months from the date of delivery.

4. Eligible applicants may purchase a maximum of XXXXXXXXXX vehicles per calendar year including those purchased by eligible family members.

5. XXXXXXXXXX will pay directly to the XXXXXXXXXX Team Member, gas allowance coupons valued at $XXXXXXXXXX for any eligible participant who purchases a XXXXXXXXXX vehicle.

6. The XXXXXXXXXX Vehicle Purchase Plan allows applicants to purchase vehicles from XXXXXXXXXX under the XXXXXXXXXX following scenarios:

XXXXXXXXXX.

7. XXXXXXXXXX.

8. XXXXXXXXXX.

Our Comments

In our view, technically, any vehicle purchase discount, whether received directly by or paid to the dealer on behalf of the employee, constitutes a taxable benefit to the employee. However, in view of the comments in paragraph 27 of IT-470R (Consolidated), we recommend that the practice adopted XXXXXXXXXX be applied to XXXXXXXXXX employees. Each employee should be allowed to purchase one discounted vehicle under the XXXXXXXXXX Vehicle Purchase Plan per calendar year without receiving a taxable benefit. A taxable benefit would be assessed on the discounts received for any additional vehicles purchased in each calendar year.

In our view, any gas allowance under the employee purchase program or rebate programs would be considered a taxable benefit included in income under paragraph 6(1)(a) of the Income Tax Act (the "Act").

With respect to the above noted rebate programs (paragraph 8), paragraph 2 of IT-470R (Consolidated) indicates that benefits described therein have been classified as taxable benefits or as non-taxable privileges. This paragraph also states that "there may well be a point beyond which the "privilege" concept is no longer valid, i.e., the advantage to the employee is, in fact, a form of extra remuneration. Then the "fringe benefit" is viewed as a taxable benefit". We have compared the rebates available under the rebate programs to the discounts described in paragraph 27 of IT-470R (Consolidated) which are considered to be non-taxable privileges.

It our view, payments that will be made under the rebate programs are different in substance from non-taxable discounts in that, in the former situation, the employee is in receipt of a monetary payment while in the latter an employer is merely foregoing a portion of profit. Accordingly, in our view, the rebates received by the employees, whether paid by XXXXXXXXXX or a supplier, will be required to be included in income under paragraph 6(1)(a) of the Act.

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

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