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 the installation and operation of a security system at an employee's home a taxable benefit where the cost is paid by the employer? 2. Is the answer the same if the employee is also the sole shareholder of the company? 3. Will the costs of the security system be deductible?
Position: Question of fact.
Reasons: Consistent with the guidelines in IT-470R and related administrative materials.
XXXXXXXXXX
2010-038274
T. Posadovsky, CMA
January 11, 2011
Dear XXXXXXXXXX :
Re: Taxable Benefits for Personal Safety and Security Costs.
We are writing in reply to your correspondence dated October 4, 2010, wherein you ask whether the installation and operation of a security system at an employee's home is a taxable benefit where the cost is paid by the employer.
According to your email, the nature of the employer's business is such that one of the company's executives has received personal threats. As a result, the employer has offered to install security cameras and security system at the individual's personal residence to help ensure his safety. In addition, you wish to know whether our answer would change if the individual was also the controlling shareholder of the company. You also inquired whether the cost of the security system would be deductible.
The particular situation outlined in your email relates to a factual one, involving specific taxpayers. 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 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. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. We are, however, prepared to offer the following general comments, which 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").
Our Comments
Subject to certain exceptions, paragraph 6(1)(a) of the Act requires that the value of any benefits received or enjoyed by a taxpayer in the year in respect of, in the course of, or by virtue of an office or employment be included in the taxpayer's income from employment. The broad wording of this provision means that a taxable benefit may exist where there is any connection between the particular payment or benefit and the particular office or employment.
Whether or not the value of a benefit that is received or enjoyed by a person is taxable under paragraph 6(1)(a) of the Act in any particular situation often depends on the primary beneficiary of the benefit conferred. Generally, if the primary beneficiary of the benefit is the employer, no taxable benefit is assessed to the employee. A determination of the primary beneficiary in a given situation must be made on a case-by-case basis.
Provided the costs are reasonable, it is our view that there is no taxable benefit to the employee where the security system is provided by the employer in respect of legitimate safety or security concerns that result directly or indirectly from the performance of the taxpayer's duties of office or employment. However, at such time that the personal safety and security concerns are no longer present, any ongoing operating or maintenance costs paid by the employer would constitute a taxable benefit.
In answer to your second question, the determination of whether a benefit is received by an employee-shareholder in his or her capacity as an employee or as a shareholder involves a finding of fact. There is a general presumption that an employee-shareholder receives a benefit by virtue of his or her shareholdings in those situations where the shareholder, or shareholders, can significantly influence business policy, except where the individual is able to establish otherwise. Exceptions to this presumption would be a situation where the benefit is available to all employees of the corporation under the same or similar circumstances, or a situation where the benefit is comparable in nature and quantum to benefits generally offered to employees who perform similar services and have similar responsibilities for other employers of a similar size.
To answer your last query, if a benefit is conferred by virtue of a person's employment, the value of the benefit is taxable pursuant to paragraph 6(1)(a) of the Act and is generally deductible by the corporation pursuant to section 9 provided the amount is otherwise allowed and reasonable under the circumstances. If a benefit is conferred by virtue of a person's shareholdings, the value of the benefit must be included in the shareholder's income under subsection 15(1) of the Act and will not be deductible for tax purposes because of paragraph 18(1)(a).
Please note also that any property acquired for the sole personal use of the shareholder is not considered to be property acquired for the purpose of gaining or producing income. In accordance with paragraph 1102(1)(c) of the Income Tax Regulations, such assets cannot be included in a class for the purposes of computing capital cost allowance and the corporation would not be entitled to a deduction under paragraph 20(1)(a) of the Act.
We trust our comments will be of assistance to you.
Yours truly,
Guy Goulet CA, M.Fisc.
A/Manager
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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