24 January 2012 External T.I. 2011-0409721E5 - Employee taxable benefits

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: Does a taxable benefit arise if employees are given the opportunity to purchase computer software at a discount from the software company as a result of the employer purchasing new software for the office computers?

Position: Yes

Reasons: Economic benefits received by employees in respect of their employment will be considered a taxable benefit even if the benefit is not provided by the employer

XXXXXXXXXX
					2011- 040972
					B. Ruttan-Morillo

January 24, 2012

Dear XXXXXXXXXX :

Re: Taxable benefits

We are writing in response to your email of June 10, 2011, concerning whether or not the purchase of computer software by employees of your company at a reduced price from your company's software supplier would be a taxable benefit.

In the situation you described, your company has purchased upgraded computer software for its office. As a result, the software supplier has offered the employees of your company the opportunity to purchase the same software for use on their home computers at a significantly reduced price (i.e. approx. 98% below retail value).

Paragraph 6(1)(a) of the Income Tax Act (Act) provides that an employee must include "the value of board, lodging and other benefits of any kind whatever received or enjoyed by the taxpayer in the year in respect of, in the course of, or by virtue of an office or employment,...". There are exceptions to this inclusion listed in subparagraphs 6(1)(a)(i) to (v) of the Act, but these exceptions do not apply to your situation. The administrative policies of the Canada Revenue Agency (CRA) are outlined in Interpretation Bulletin IT-470R, Employees' Fringe Benefits and in Guide T4130, Employers' Guide - Taxable Benefits and Allowances. Administrative policy changes were also updated and published in Income Tax Technical News No. 40, dated June 11, 2009. These publications are available on the CRA Web site at: www.cra.gc.ca.

The economic benefit that an employee may derive from taking advantage of an employee discount is not normally regarded as a taxable benefit if the discount is also available to the general public or to specific public groups. The employees are receiving a discount from the supplier as a result of their employment with your company. Obtaining the computer software from the supplier at the significantly reduced price would not have been possible had they not been employees of your company. The fact that the discount is provided by the supplier is not relevant as it is our position that employees can receive a benefit in respect of their employment even if the benefit was not provided by their employer.

It is our understanding that the software purchased by the employees will be installed on their home computers and will not be used for employment related purposes, such as working from home or training. Therefore, all employees that purchase the software at the reduced price will be considered to have received a taxable benefit in respect of their employment equal to the difference between the fair market value of the software and the amount paid for the software.

We trust these comments will be of assistance.

Nerill Thomas-Wilkinson
Manager
for Director
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch