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 a reimbursement for a councillor's meal by the city during council meetings would be fully exempt from tax.
Position: Only 1/3 of the reimbursement would be exempt from income tax in accordance with subsection 81(3) of the Act.
Reasons: For elected municipal officers, subsection 81(3) of the Act provides an exception to the general rule that benefits or allowances paid in connection with an office or employment are taxable. IT-292 provides CRA's long standing position that where a particular Municipal Act deems a proportion of the total remuneration paid to an elected member of a municipal council to be an allowance for expenses, it is the CRA's policy that the proportion so deemed (up to one third of the total paid) will be accepted as an expense allowance. IT-292 further provides that the total of all amounts received, including the amounts that are otherwise taxable, from the municipal corporation is used to determine a councillor's exemption.
XXXXXXXXXX
2011-039878
N. Pulandiran
June 28, 2011
Dear XXXXXXXXXX :
Re: Payment for Meals from Municipal Councillor's Expense Account
I am writing in response to your e-mail of March 9, 2011 concerning the taxation of meals provided to municipal councillors on council nights. More specifically, you have enquired whether a taxable benefit would arise if the city reimburses councillors from their sundry expense account for meals they purchase during council meetings.
In the situation you described, councillors are currently provided with free meals during council meetings which usually operate from XXXXXXXXXX to XXXXXXXXXX and occur XXXXXXXXXX times per year. Councillors are provided with a sundry expense account that has an annual maximum amount. The sundry account can be used for travel, entertainment, and other business related expenses. Councillors are required to submit receipts before they can be reimbursed from their sundry expense account.
The city is considering having councillors pay for their own meals on council nights and then be reimbursed from their sundry expense account. The city is subject to the deeming provision of subsection 283(5) of the Ontario Municipal Act, 2001 which provides that one-third of the remuneration paid to elected members of council or its elected boards is deemed to be expenses incident to the discharge of their duties as members of council or elected boards.
Our Comments
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of a request for an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, Advanced Income Tax Rulings, dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the internet at http://www.cra-arc.gc.ca. Where the particular transactions are complete, the inquiry should be addressed to the relevant tax services office, a list of which is available on the "Contact Us" page of the CRA website. We are, however, prepared to provide the following general comments.
Generally, in accordance with paragraph 6(1)(a) of the Income Tax Act (the "Act") the value of benefits of any kind whatever received or enjoyed by a taxpayer in the year in respect of, in the course of, or by virtue of an office or employment, subject to certain exceptions, is subject to tax. Subsection 248(1) of the Act defines "office" as the position entitling an individual to a fixed or ascertainable stipend or remuneration. A person might hold an office even though the person is not an employee, i.e., even if the person is not in the service of some other person. It has been held that the position of mayor or councillor of a city is an "office".
The CRA accepts that where an amount is paid by an employer in respect to an item that is primarily for the benefit of the employer or office (hereinafter referred to as "employer"), then it is generally not considered to be a taxable benefit to an employee or officer (hereinafter referred to as "employee"). It is the employer's responsibility to determine whether the primary beneficiary of the economic advantage is the employer or the employee.
Paragraph 6(1)(b) of the Act includes in income all amounts received in the year as allowances for personal or living expenses, or as an allowance for any other purpose, subject to certain stated exceptions. None of the exceptions in the Act apply to meals received by city councillors during council meetings. However, subsection 81(3) of the Act may apply resulting in only partial taxation of an allowance received by elected municipal officers.
The CRA's general views regarding subsection 81(3) of the Act are contained in Interpretation Bulletin IT-292, Taxation of Elected Officers of Incorporated Municipalities, School Boards, Municipal Commissions and Similar Bodies. As noted in paragraph 6 of IT-292, where a particular municipal act deems a proportion of the total remuneration paid to an elected member of a municipal council to be an allowance for expenses, it is the CRA's policy that the proportion so deemed (up to one third of the total paid) will be accepted as an expense allowance. This treatment will apply notwithstanding that local bylaws may specifically allocate portions of the total remuneration to salary, indemnity, allowance or other remuneration. Further, paragraph three of IT-292 states that for purposes of determining the amount available for the exemption, "the total of the amounts received" should be used. Accordingly, an amount reimbursed for a meal received during city council meetings would be included in the total remuneration determination resulting in one third being tax exempt under subsection 81(3) of the Act.
We trust our comments will be of assistance to you.
Yours truly,
Phyllis Waugh
A/Manager
for Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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