20 May 2010 External T.I. 2009-0349581E5 - Financial Assistance to Employees' Extended Family

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: Whether in the particular circumstances, financial assistance provided by an employer to its employees' extended families in the XXXXXXXXXX who were directly affected by the hurricanes and typhoons in XXXXXXXXXX , would be taxable to the employees.

Position: Probably not, as long as it is a one-time payment that is not remitted to the employees directly and will not result in the employees foregoing any present or future employment compensation as a result thereof.

Reasons: In these specific facts and circumstances, it is likely that the financial assistance is made in a personal capacity, for philanthropic reasons and not as a payment for services performed by, or conferred as a benefit to, the employees.

								2009-034958
XXXXXXXXXX 							Renee Sigouin
								(613) 957-2128
May 20, 2010 

Dear XXXXXXXXXX :

Re: Financial Assistance to Employees' Extended Families

This is in response to your letter of November 27, 2009 wherein you requested our comments as to whether proposed financial assistance payments (the "Assistance") from XXXXXXXXXX (the "Employer") to a number of its employees' (the "Employees") extended families in the XXXXXXXXXX (the "Families") would be subject to tax in the hands of the Employees. You have advised that the Assistance will be made to each of the Employees' Families who were directly affected by the hurricanes and typhoons in the XXXXXXXXXX in XXXXXXXXXX .

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 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.

The Income Tax Act (the "Act") provides that amounts received by an employee from his or her employer as salary, wages or other remuneration in respect of an office or employment will be included in a taxpayer's income pursuant to subsection 5(1) of the Income Tax Act. Furthermore, paragraph 6(1)(a) of the Act states that a taxpayer's income from an office or employment shall 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", with certain stated exceptions. An amount or benefit not directly received or enjoyed by an employee may also be included in his or her income under these provisions by virtue of subsection 56(2) of the Act.

Subsection 56(2) of the Act states that a "payment or transfer of property made pursuant to the direction of, or with the concurrence of, a taxpayer to some other person for the benefit of the taxpayer or as a benefit that the taxpayer desired to have conferred on the other person ... shall be included in computing the taxpayer's income to the extent that it would be if the payment or transfer had been made to the taxpayer." This provision is discussed in detail in IT-335R2: Indirect Payments, which is available on the CRA website.

Notwithstanding the above, it is our view that, limited to these exceptional facts and circumstances, the remittance of one-time Assistance to the Families would likely be considered to have been made by the Employer in a personal and philanthropic capacity, and not as a payment for services performed by, or conferred as a benefit to, the Employees. Accordingly, the Assistance to the Families need not be included in the employment income of the Employees.

Where the Assistance is not a one-time remittance, the Assistance is made directly to the Employees for the benefit of their Families, or the Employees forego or are perceived to forego any present or future employment compensation (e.g., salary, bonus or benefits) in consequence of the Assistance to the Families, the amount will be taxable to the Employees pursuant to paragraph 6(1)(a) or subsection 56(2) of the Act.

It should also be noted that the Employer will not be entitled to deduct the Assistance for income tax purposes as a charitable donation under section 110.1 of the Act, as the relevant criteria in this provision will not be satisfied. The payments would also not be deductible under paragraph 18(1)(a) of the Act, as the payments are not outlays or expenses made or incurred for the purpose of gaining or producing income from the Employer's business.

We trust that these comments have been of assistance.

Yours truly,

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