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Principal Issues: [TaxInterpretations translation] What is the tax treatment of various amounts paid and/or benefits provided to directors of a non-profit organization?
Position: General comments.
Reasons: Questions of fact.
XXXXXXXXXX
2010-035597
Guy Goulet CA, M.Fisc.
613-957-4364
June 21, 2010
Dear Sir,
Subject: Amounts paid to directors.
This is in response to your letter of January 27, 2010, in which you requested our opinion regarding the tax treatment of various amounts paid and/or benefits provided to directors of a corporation that is a non-profit organization (the "Organization") described in paragraph 149(1)(l).
Unless otherwise indicated, all legislative references herein are to the provisions of the Income Tax Act (the "Act").
You indicated that the Organization operates in two different regions and maintains two establishments, one in each of these regions. Board meetings are generally held at the end of the day once every two months, alternating at each of these two locations. The directors of the Organization hold their positions as part-time directors and all hold other employment or carry on a business. They receive attendance fees from the Organization when they attend meetings that are taxable by virtue of paragraph 6(1)(c). The Organization pays a travel allowance to directors who must travel between regions to attend meetings. At these meetings, a buffet, including food and beverages, is provided.
Furthermore, you indicated that directors occasionally participate in events held outside the regions where the Organization operates. These may include strategic planning meetings of the Organization, conventions, or other events where directors represent the Organization. In these situations, the Organization reimburses directors for their accommodation, meals and travel expenses. As a way of thanking and encouraging directors to participate in these events, the Organization may provide them with tickets to performances, festivals, or other entertainment during their free evenings at a particular event. The Organization may also invite one or more of its directors and other stakeholders to concerts or a box at hockey games in order to develop business relationships and contacts for the purposes of the Organization's activities.
Our Comments
It appears to us that the situation described in your letter may constitute an actual situation involving taxpayers. The Canada Revenue Agency ("CRA") does not generally provide written opinions on proposed transactions otherwise than by way of an advance income tax ruling. Furthermore, it is the responsibility of the relevant Tax Services Office to determine whether completed transactions have received appropriate tax treatment. We can, however, offer the following general comments that may not fully apply in a particular situation.
Generally, in accordance with the definitions "employee" and "office" in subsection 248(1), directors of a particular corporation are considered to be employees of that corporation. Thus, a director of a corporation must include in computing income from an office or employment for a taxation year the value of any benefits received or enjoyed in the year in respect of, in the course of, or by virtue of, an office or employment under paragraph 6(1)(a). Also, in computing income from an office or employment for a taxation year under paragraph 6(1)(b), the taxpayer will be required to include in income for the year any amounts received in the year as personal or living expense allowances or as an allowance for any other purpose unless inter alia the exception in subsection 81(3.1) applies.
Subsection 81(3.1) provides, among other things, that an individual is not required to include in computing income for a taxation year an amount received by the individual from an employer with whom the individual was dealing at arm’s length as an allowance for, or reimbursement of, travel expenses incurred by the individual in the year in respect of the individual’s part-time employment in the year with the employer in the year where the individual had other employment or was carrying on a business and that part-time employment was performed at a location that is at least 80 kilometres from the individual's ordinary place of residence and the place of the other employment or business.
It is difficult for us to comment on the situation you have submitted to us since we do not have all the relevant facts and circumstances surrounding the transactions described in your request. However, it is our view that subsection 81(3.1) could apply to the travel allowance paid by the Organization to its directors who have to travel from one region to another to attend meetings of the Organization's board of directors if all the conditions of that subsection were otherwise satisfied.
On the other hand, the payment or reimbursement by the employer of an employee's expense is generally a taxable benefit to be included in computing the employee's income under paragraph 6(1)(a) where it results in an economic benefit or advantage to the employee. However, if the payment or reimbursement of the expense primarily benefits the employer rather than the employee, the payment or reimbursement of the expense may not be a taxable benefit to the employee. This is a matter to be determined in light of all the relevant facts of a particular situation. In this case, it appears to us that meal expenses paid by the Organization for its directors at meetings of its Board of Directors and the reimbursement of travel expenses to directors attending events held outside the regions where the Organization operates may not be taxable benefits to the extent that the payment or reimbursement of the expense is primarily for the benefit of the Organization and the payment or reimbursement of the expense does not constitute a taxable benefit to the employee.
Finally, it appears to us that the value of tickets to shows, festivals or other entertainment activities that the Organization provides to its directors to thank them and encourage them to participate in events or activities could be a taxable benefit under paragraph 6(1)(a) if it results in an economic benefit or profit for them or if it constitutes a form of remuneration for the services they have rendered.
We hope that our comments are of assistance.
Best regards,
Randy Hewlett
Manager
for the Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.
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