28 October 2010 External T.I. 2010-0374311E5 - Taxable Benefits - Recreational Vehicle

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 Canada Revenue Agency's ("CRA") basis for calculating the personal use taxable benefit of a corporate asset?

Position: It is a question of fact. Generally, fair market value.

Reasons: The CRA's general position on the taxable status of employee benefits is discussed in Interpretation Bulletin IT-470R (Consolidated) - "Employees' Fringe Benefits" and the Employer's Guide T4130. Generally speaking, it is accepted that the value of an employment benefit is its fair market value. As noted in paragraph 10 of IT-470R, where a vacation property owned by an employer is used for vacation purposes by an employee, the employee's family or both, there is a taxable benefit conferred on the employee under paragraph 6(1)(a) the value of which is equivalent to the fair market value of the accommodation less any amount which the employee paid to the employer.

XXXXXXXXXX
									2010-037431
									Brenda White
									519-645-5454
October 28, 2010

Dear XXXXXXXXXX :

Re: Taxable Benefit for Recreational Vehicle

This is in response to your letter of July 6, 2010 wherein you asked for clarification regarding the calculation of a taxable benefit for the personal use of an employer's motorhome.

In the situation described, a private corporation owns a motorhome which is used by maintenance employees when they are required to work offsite in remote locations. When the motorhome is not being so used, it is made available for the personal use of the shareholders and employees of the corporation. You have asked what method of calculation should be applied to value the resulting taxable benefit.

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 (IC) 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. Although we cannot comment on your specific situation, we are prepared to provide the following comments in respect of the issues that you raised. Please note, however, that these comments are of a general nature only and are not binding on the CRA.

Paragraph 1 of Interpretation Bulletin IT -432R2, "Benefits Conferred on Shareholders" notes that if a person on whom a benefit has been conferred is both a shareholder and an employee of the corporation, a determination will have to be made, taking into consideration all the relevant facts and circumstances of the particular case, as to whether the benefit was conferred by the corporation on the person as a shareholder or as an employee.

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 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.

Based on the information provided, we have assumed that an equivalent benefit is extended to all employees, whether a shareholder or not and that the resulting taxable benefit is an employment benefit.

Subject to certain exceptions, paragraph 6(1)(a) of the Income Tax Act (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.

The CRA's general position on the taxable status of employee benefits is discussed in Interpretation Bulletin IT-470R (Consolidated) - "Employees' Fringe Benefits" and the Employer's Guide T4130. Generally speaking, it is accepted that the value of an employment benefit is its fair market value. As noted in paragraph 10 of IT-470R, where a vacation property owned by an employer is used for vacation purposes by an employee, the employee's family or both, there is a taxable benefit conferred on the employee under paragraph 6(1)(a) the value of which is equivalent to the fair market value of the accommodation less any amount which the employee paid to the employer. This comment, as well as the general position described above, have application to the situation you have described.

The calculation of the fair market value of a benefit received is a question of fact that should take into account all the circumstances of the particular situation. Information Circular 89-3 "Policy Statement on Business Equity Valuations", provides the following guidance with respect to the concept of "fair market value":

"Fair market value is the highest price, expressed in terms of money or money's worth, obtainable in an open and unrestricted market between knowledgeable, informed and prudent parties acting at arm's length, neither party being under any compulsion to transact."

We trust these comments will be of assistance.

Yours truly,

Renée Shields
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch