23 September 2010 External T.I. 2010-0377261E5 - Taxable Benefits - Internet and Phone Service

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: What is the taxable benefit treatment of discounted rates for Internet and phone services provided by an employer?

Position: Generally the fair market value of the benefit should be included in the taxpayer's income. Where an employee requires the services to work from home, the business use portion of the discount on services would not be a taxable benefit.

Reasons: Previous positions taken.

XXXXXXXXXX
									2010-037726
									Andrea Boyle, CGA

September 23, 2010

Dear XXXXXXXXXX :

Re: Taxable Benefits - Internet and Phone Service

I am writing in reply to your letter dated August 3, 2010, in which you asked about the taxable benefit treatment of discounted rates for phone and Internet services which you propose to offer to employees. You have indicated that you are considering two options, a percentage discount or a fixed dollar value credit, and that you have a number of employees that work from home and require both phone and Internet services to conduct business.

The particular situation outlined in your letter is a factual one, involving a 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.

Paragraph 6(1)(a) of the Act provides that there shall be included, in computing the income of a taxpayer, for a taxation year, as income from an office or employment, the "value of 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".

Generally, the value of a non-cash benefit to be included in an employee's income is the fair market value of that benefit. Where the fair market value cannot be determined with any degree of certainty, it may be reasonable to consider the employer's cost as a measure of the benefit. However, the employer's cost is not necessarily indicative of the value of the benefit and generally should only be used where the value of the benefit to the employee cannot otherwise be determined.

It is a question of fact whether the fair market value of a taxable benefit is readily determinable. In the case of a percentage discount or fixed dollar value credit on phone or Internet services, we would normally expect that the value of the benefit would be readily determinable since the value of the benefit provided to employees could be established with reference to the amount customarily charged by the company to non-employees.

Where an employee works from home and requires both phone and Internet services to help carry out his or her employment duties, the taxable benefit inclusion due to the discount or credit can be reduced by the percentage of business use, and thus only the value of the personal portion of the use constitutes a taxable benefit.

An exception to the personal use inclusion might apply in the case of a cellular phone service or a second home telephone line where these services were acquired primarily to carry out an individual's duties of employment. In our view, a taxable benefit on the discount or credit on the personal use of these services may not apply if (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 additional charges over the basic plan cost.

We trust that these comments will be of assistance.

Yours truly,

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