4 May 2010 External T.I. 2011-0394901E5 - Long Service Awards

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.

Principal Issues: Whether “Companybucks" given to employees qualify for the $500 exemption as long service awards?

Position: No

Reasons: They are essentially gift certificates and are considered to be a near-cash gift or award.

XXXXXXXXXX 						2011-039490
								A. Townsend
May 4, 2011

Dear XXXXXXXXXX :

Re : Long Service Awards

I am writing in response to your letter of January 21, 2011 asking whether long service awards (“Companybucks”) offered by your company are considered to be non-cash long service awards that are exempt from tax. “Companybucks” are given to employees with long service and are for specific amounts of money ($50, $100, $250 etc). They have no cash value, expire after one-year and are redeemable in the employee’s store located at the company’s main warehouse for a wide variety of merchandise that the company also sells to the general public through authorized dealers.

Written confirmation of the tax implications inherent in a particular transaction is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. The particular situation outlined in your letter relates to a factual one, therefore, you should submit all relevant facts and documentation to the appropriate Tax Services Office for their views. However, we are prepared to offer the following general comments that may be of assistance.

All statutory references in this letter are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended (the “Act”).

CRA’s policy with respect to long service awards is outlined in Guide T4130, Employer’s Guide – Taxable Benefit and Allowances. Basically, this policy allows an employer to give an employee a non-cash long service award valued at $500 or less exempt from tax. The award must be for a minimum of five years of service and can be issued to an employee in every five subsequent years of service.

Cash or near-cash gifts and awards are not covered by CRA’s administrative policy and the value of such gifts and awards are considered to be a taxable benefit and included in income in the year of receipt in accordance with paragraph 6(1)(a). Near-cash gifts are considered to be an item that can easily be converted to cash or are essentially the equivalent to cash, such as a gift certificate.

In the situation that you have described, the company maintains an employee store at its main warehouse that allows employees to purchase products manufactured by the company that are also readily available to the general public. The choice of products for employee purchases is subject to availability and ranks behind dealer orders. Companybucks can be only be used by employees to pay for items purchased at the employee store.

Based on the above, it is our opinion that Companybucks are essentially gift certificates that can be used as the equivalent to cash at the employee store. Therefore, they are considered to be a near-cash gift or award and the receipt of a Companybuck will result in a taxable benefit to the employee under paragraph 6(1)(a).

I trust the foregoing is of assistance.

Yours truly,

Randy Hewlett
Manager
For Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch