30 May 1990 Income Tax Severed Letter RRRR284 - Taxable benefits — sale of merchandise to employees at less than employer's cost

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.

• 5- 9721 J.D. Jones (613) 957-2104

Attention:

May 30, 1990

Dear Sirs:

Re: Taxable Benefits - Sale of merchandise to Employees at Less Than Employer's Cost

This is in reply to your letter of March 7, 1990, wherein you requested our opinion on whether a taxable benefit would be considered as having been conferred on employees by virtue of paragraph 6(1)(a) of the Act in the following situation.

For promotional reasons, an employer purchases merchandise (jackets, t- shirts, caps, pen-sets, etc.), embosses the merchandise with the company logo and colours, and sells it to the employees for 50% of cost. The merchandise in question is not part of the employer's normal stock-in- trade. The program is available to all employees.

The purpose of the program is to promote pride in the company among the employees and to advertise and promote the company's name and image in the community. The difference between the employer's cost and the sale price is considered by the employer to be the promotional value of the merchandise due to having the company's logo and colours on the items and therefore not to be a taxable benefit to the employees. The employees are encouraged to use this merchandise as often as they can, especially during public and company functions.

The Department's position on the sale of merchandise to employees at a discount is set out in paragraph 27 of Interpretation Bulletin IT-470R dated April 8, 1988. Where merchandise is sold to employees at less than cost, it is our view that the difference between cost and selling price is generally a taxable benefit to the employees. We feel this view is supported by the decision of the Exchequer Court of Canada in Waffle v. M.N.R., [[1968] C.T.C. 572] 69 DTC 5007.

The amount of a taxable benefit assessed to an employee may be reduced or eliminated where, as a condition of employment, he or she is provided with a particular item in order to carry out the duties of an office or employment. However, it is our view that this is not the case in the above situation.

Since it is apparent from our telephone conversation that your question relates to a particular taxpayer, we recommend that you contact the District Taxation Office providing the name of the taxpayer and full particulars of the facts for their views on this matter.

We trust our comments are of assistance to you and regret that our reply could not be more definitive.

Yours truly,

for Director
Business and General Division
Specialty Rulings Directorate
Legislative and Intergovernmental
Affairs Branch