6 February 1998 External T.I. E9730355 - TAXABLE BENEFITS TO EMPLOYEES

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:

Taxable benefit relating to providing employees with the opportunity of purchasing company leased vehicles at less than fair market value.

Position:

The difference between the sale price (book value) and the fair market value is a taxable benefit.

Reasons:

No specific exclusion provided for in subparagraphs 6(1)(a)(i) through to 6(1)(a)(v). Therefore the difference between the sale price and fair market value is a benefit to the employee and taxable under 6(1)(a).

5-973035

XXXXXXXXXX Karen Power,C.A.

Attention: XXXXXXXXXX

February 6, 1998

Dear Sirs:

Re: Taxable Benefits to Employees

We are writing in response to your letter dated November 12, 1997, wherein you requested our opinion on whether your employees would receive a taxable benefit when they purchase vehicles previously leased by the company, at less than the vehicle's current fair market value.

Our Comments

Written confirmation of the tax implications 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. The procedures for requesting an advance income tax ruling are outlined in Information Circular 70-6R3 dated December 30, 1996. Where the particular transactions are completed, the enquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments which are of a general nature.

Subject to the exceptions provided for in subparagraphs 6(1)(a)(i) through to 6(1)(a)(v) of the Income Tax Act (the "Act"), paragraph 6(1)(a) of the Act requires the value of benefits of any kind whatever, which are received or enjoyed by the employee in the course of employment to be included in income.

In our view, a taxable benefit under paragraph 6(1)(a) of the Act will be imposed on employees in the year of the sale of a vehicle, in circumstances where the sales price is less than the fair market value of the vehicle. The difference between sales price and fair market value is considered to be a benefit to the employee which must be included in the employee's income from employment.

We trust our comments will be of assistance to you.

Roberta Albert, C.A.

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