8 June 2011 External T.I. 2011-0399171E5 - Cellular Phone Allowance

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: 1. Is a monthly allowance paid to an employee for the use of a cellular phone service a taxable benefit? 2. Is a reimbursement paid to an employee for the cost of a cellular phone a taxable benefit if it is used primarily to perform duties of employment?

Position: 1. Question of fact. 2. Yes

Reasons: 1. In accordance with CRA's administrative policy, when an employee receives a reimbursement of the cost of a basic cellular phone plan and the primary purpose is to perform duties of employment, the reimbursement would generally not be considered a taxable benefit as long as all of the following conditions are met: the plan's cost is reasonable; the plan is a basic plan with a fixed cost; and the employee's personal use of the service does not result in additional charges over the basic plan cost. 2. When a reimbursement by an employer relates to an asset purchased and owned by an employee, the employee benefits from the assistance and is generally required to include the amount of the reimbursement in income in accordance with paragraph 6(1)(a) of the Act.

XXXXXXXXXX 							2011-039917
								C. Underhill
June 8, 2011

Dear XXXXXXXXXX :

Re: Taxable Benefit of a Monthly Allowance for the use of a Cellular Phone

I am writing in response to your e-mail of March 15, 2011 concerning the taxation of a cellular phone. More specifically, you have enquired whether a monthly allowance paid to an employee for the use of a cellular phone service is a taxable benefit.

In the situation you described, an employee purchases a basic cellular phone service plan (the "Plan") from the employer's cell phone service provider to carry out his/her duties of employment. The plan purchased allows for a specific number of airtime minutes each month and additional charges are made for airtime use over and above the plan's specified number of minutes. The employee receives and pays the Plan invoice from the cell phone service provider. The employer pays a flat monthly reimbursement to the employee for the use of the Plan. Any additional charges over and above the Plan cost will not be reimbursed unless the charges relate to duties of employment. The employee submits a copy of the Plan contract to the employer to identify the cellular phone number, verify which service plan was purchased, and the terms of the Plan (monthly fee, number of airtime minutes, etc.) The employer may provide a one time reimbursement for a basic cellular phone purchased by an employee to use with the Plan.

Our Comments

Written confirmation of the tax implications inherent in particular transactions may only be provided by this Directorate where the transactions are proposed and are the subject matter of an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, Advance 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 completed, the inquiry should be addressed to the relevant Tax Services Office. We are, however, prepared to provide the following general comments.

In accordance with paragraph 6(1)(a) of the Income Tax Act (the "Act"), employees are generally taxable on the value of benefits received from an employer by virtue of their employment. However, 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, then it is generally not considered to be a taxable benefit to an employee. It is the employer's responsibility to determine whether the primary beneficiary of the economic advantage is the employer or the employee.

As noted in CRA Guide T4130, Taxable Benefits and Allowances, when an employer reimburses an employee for the cost of a cellular phone service plan and the primary use is for business purposes, the reimbursement would generally not be considered a taxable benefit. In our view, we do not consider an employee's personal use of a cellular service plan to be a taxable benefit if all of the following conditions apply:

1. The plan's cost is reasonable,

2. The plan is a basic plan with a fixed cost, and

3. The employee's personal use of the service does not result in charges that are more than the basic plan cost.

The plan selected by an employee must be reasonable in respect of the employee's business related needs. If a more costly plan were purchased that provided airtime or other features beyond the reasonable business needs of the employee, there may be a taxable benefit to the employee with respect to the costs associated with the excess airtime or features.

Where the incidental personal use of the cellular phone by the employee does not contribute to additional charges being incurred over and above the reasonable basic plan price, the reimbursement is not included in the employee's taxable employment income since there is no economic advantage or benefit to the employee.

A taxable benefit under paragraph 6(1)(a) of the Act may arise where additional charges are incurred in excess of the price of a reasonable basic plan, as a result of the employee's personal use of airtime minutes or personal long distance calls. A taxable benefit will be considered conferred on an employee to the extent the employee's personal use of the cellular phone has contributed to additional charges over and above the price of the basic plan.

When a reimbursement by an employer relates to an asset purchased and owned by an employee, the employee benefits from the assistance and is generally required to include the amount of the reimbursement in income pursuant to paragraph 6(1)(a) of the Act. For example, if an employer reimburses an employee for the cost of a cellular phone that the employee purchased and will continue to own, the employee's net cost of purchasing the cellular phone is less than it would have otherwise been. Since the employee has received an economic benefit from the employer, the amount of the reimbursement would be included in the employee's income. This is so even if the employee is required to use the cellular phone in the course of his/her duties of employment.

We trust these comments will be of assistance.

Yours truly,

Phyllis Waugh
A/Manager
for Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch