S2-F3-C2, Benefits and Allowances Received from Employment

Introduction

The purpose of this Chapter History page is to highlight any amendments to the information contained in an interpretation bulletin that is now reflected in a chapter of an income tax folio as well as to identify any subsequent amendments to a folio chapter. It outlines amendments that have been made as a result of legislative changes and proposed legislative changes, precedential court decisions, as well as new or revised interpretations of the Canada Revenue Agency (CRA).

Update July 7, 2016

General

Income Tax Folio S2-F3-C2, Benefits and Allowances Received from Employment, replaces and cancels Interpretation Bulletin IT-470R (Consolidated), Employees’ Fringe Benefits, ¶7 and 8 of IT-131R2, Convention expenses, ¶12 of IT-148R3, Recreational Properties and Club Dues, and Income Tax Technical News No. 40.

In addition to consolidating content from the former publications, general revisions have been made to improve readability. Any substantive technical and interpretive changes to the information from the former publications are described below. Except as otherwise noted, all statutory references herein are references to provisions of the Income Tax Act, R.S.C., 1985, c. 1 (5th Supp.), as amended.

Legislative and other changes

¶2.2 - 2.4 are added to discuss the tax treatment of benefits and allowances received by an individual who is both an employee and a shareholder of a corporation. The paragraphs also highlight the importance of establishing whether such benefits and allowances are conferred on an individual in the capacity of an employee or shareholder.

¶2.6 is added to discuss the meaning of the terms salary, wages and other remuneration.

¶2.7 (formerly included in ¶2 of IT-470R) is expanded to include allowances.

¶2.8 is added to discuss certain payments to individuals that are deemed to be included in employment income by subsection 6(3).

¶2.11 is added to discuss the meaning of the phrases “benefits of any kind whatever ” and “in respect of” in paragraph 6(1)(a). The meanings are based on the Supreme Court of Canada’s decisions in The Queen v Savage, [1983] 2 S.C.R. 428, 83 DTC 5409, and Nowegijick v The Queen, [1983] 1 S.C.R. 29, 83 DTC 5041.

¶2.12 (formerly included in ¶10 and 15 of IT-470R, and ¶8 of IT-131R2) is updated to reflect the amendment made to paragraph 6(1)(a) by S.C. 2013, c. 34, s. 170(1), which clarified that benefits an employer provides to an individual who does not deal at arm’s length with an employee are included in the employee’s income. The amendment applies to benefits received on or after October 31, 2011.

¶2.13 - 2.14 (formerly included in ¶15 of IT-470R and ¶8 of IT-131R2) are updated to discuss some of the ways a benefit may be received by an employee and when the benefit is included in an employee’s income under paragraph 6(1)(a).

¶2.15 - 2.22 (formerly included in ¶11, 23 and 32 of IT-470R, ¶7 of IT-131R2, and ¶12 of IT-148R3) are updated and examples 1 – 4 are added to discuss the meaning of the term economic advantage. The paragraphs also discuss the meaning of the terms reimbursement, accountable advance, personal or living expenses, and regular place of employment.

¶2.23 - 2.25 (formerly included in ¶11, 12, 18, 19, and 21 of IT-470R) are updated and example 5 is added to discuss the meaning of the term primary beneficiary, and how to determine who is the primary beneficiary of a benefit.

¶2.26 (formerly included in ¶3 and 10 of IT-470R) is updated and example 6 is added to reflect the Federal Court of Appeal’s decision in The Queen v Carroll A. Spence, 2011 FCA 200, 2011 DTC 5111, which concluded that it is the fair market value of a benefit that should be included in an employee’s income. The paragraph also discusses the meaning of the term fair market value.

¶2.27 - 2.28 (formerly included in ¶27 of IT-470R) are updated and examples 7 - 9 are added to discuss third-party benefits and discounts received from employment.

¶2.29 and example 10 are added to discuss the tax consequences of receiving a benefit in the person’s capacity as an individual rather than as an employee.

¶2.30 - 2.32 (formerly included in ¶8 of IT-470R) are expanded to include a general discussion on automobile benefits.

¶2.33 - 2.35 (formerly included in ¶24 of IT-470R) are expanded to provide a general description and overview of the tax treatment of employer contributions to and benefits received from a group sickness or accident insurance plan. ¶2.34 is added to reflect paragraph 6(1)(e.1), which was added by S.C. 2012, c. 31, s. 2(2) and (3). Paragraph 6(1)(e.1) applies to contributions made to a group sickness or accident insurance plan that provides lump sum payments or pays benefits where there has been no loss of employment income. The amendment applies to contributions made on or after March 29, 2012, that are attributable to an employee’s coverage after 2012.

¶2.36 is added to discuss the annual inclusion in income under subsection 6(4) for benefits derived from an employer’s contribution to a group term life insurance policy.

¶2.37 - 2.39 (formerly included in ¶37 of IT-470R) are updated and the discussion on the tax rules for an employer-paid housing loss benefit prior to February 23, 1998 is removed.

¶2.42 (formerly included in ¶39 of IT-470R) is expanded to discuss the tax treatment of employer contributions to a wage-loss replacement plan and a private health services plan. Subparagraph 6(1)(a)(i) was amended by S.C. 2010, c. 25, s. 2(1), to include an employer’s contribution to such plans provided through an employee life and health trust. The amendment applies for the 2010 and subsequent years.

¶2.43 (formerly included in ¶40 of IT-470R) is expanded and example 11 is added to discuss the tax treatment of benefits received from a private health services plan or a group sickness or accident insurance plan as described in paragraph 6(1)(e.1). Subparagraph 6(1)(a)(i) was amended by S.C. 2010, c. 25, s. 2(1), to include plans provided through an employee life and health trust. The amendment applies for the 2010 and subsequent years.

¶2.44 - 2.45 are added to discuss the tax treatment of disability-related benefits received from employment.

¶2.46 - 2.48 (formerly included in ¶26 and 46 of IT-470R) and example 12 are updated to discuss the meaning of counselling services and the exclusion from income by subparagraph 6(1)(a)(iv) for benefits derived from counselling services.

¶2.49 (formerly included in ¶20 and 31 of IT-470R) is updated and examples 13 and 14 are added to reflect subparagraph 6(1)(a)(vi), which was added by S.C. 2013, c. 34, s. 170(1). Subparagraph 6(1)(a)(vi) applies to benefits received on or after October 31, 2011.

¶2.50 - 2.51 (formerly included in ¶7 of IT-470R) are expanded to discuss the tax treatment of a reasonable allowance for, or a reimbursement of, travel expenses received by a part-time employee for going to and from the employee's part-time employment. The discussion on section 110.7 (northern residents deduction) is removed because this Chapter is limited to the discussion of benefits, allowances, and exclusions.

¶2.52 - 2.54 (formerly included in ¶5 - 7, and 32 of IT-470R) are expanded to provide a general description and overview of the exclusion from income for benefits and allowances provided to an employee at a special work site or remote work location.

¶2.55 - 2.56 (formerly included in ¶7 of IT-470R and ¶7 of IT-131R2) are expanded to include a general overview of the taxation of employment allowances and advances.

¶2.57 - 2.60 are added to discuss exclusions from income of certain allowances related to government work.

¶2.61 and example 15 are added to discuss the exclusion from income of board and lodging allowances received by amateur athletes on non-profit sports teams and members of recreational programs. Subparagraph 6(1)(b)(v.1) was added by S.C. 2007, c. 16, s. 1, effective for tax years that end after June 22, 2007.

¶2.62 - 2.63 (formerly included in ¶7 and 32 of IT-470R) are expanded to discuss the exclusion from income of certain travel allowances and the meaning of the word travel.

¶2.64 is added to discuss the meaning of a reasonable allowance.

¶2.65 - 2.67 (formerly included in ¶8 of IT-470R) are expanded to discuss the exclusion from income of certain motor vehicle allowances.

¶2.68 (formerly included in ¶6, 9, 13, 14, 16, 17, 27 - 30, 33 - 36, 38, 41, 43, 44, and 47 of IT-470R, ¶12 of IT-148R3, and ITTN 40) is updated to provide readers with links to CRA administrative policies that are discussed in Guide T4130 - Employers’ Guide Taxable Benefits and Allowances, or on the CRA webpage Benefits and Allowances.

¶2.69 (formerly included in ¶3 of IT-470R) is updated to discuss the reporting and withholding requirements for benefits and allowances received from employment that are required to be included in an employee’s income under subsection 6(1).

Parts of ¶21 and 31 of IT-470R that discuss subparagraph 6(1)(b)(ix) have been removed. The exclusion from income by subparagraph 6(1)(a)(vi) (see ¶2.49) is broader than the exclusion provided by subparagraph 6(1)(b)(ix). An employer formerly paying an education allowance, as described under subparagraph 6(1)(b)(ix), will likely now offer a benefit that will be excluded by subparagraph 6(1)(a)(vi).

¶22 of IT-470R is removed. The transfer of unused tax credits is discussed in Income Tax Folio S1-F2-C2, Tuition Tax Credit.

¶38 of IT- 470R is removed. Moving expenses are discussed in Income Tax Folio S1-F3-C4, Moving Expenses.

¶42 of IT-470R is removed to reflect the Federal Court of Appeal’s decision in The Queen v Carroll A. Spence, 2011 FCA 200, 2011 DTC 5111, which concluded that it is the fair market value of a benefit that should be included in an employee’s income.

¶45 of IT- 470R is removed. Although the position in that paragraph regarding costs incurred by public office holders is still valid, it has limited application to most employees.