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: Question 2, under Technical matters.
Position: See response.
Reasons: See response.
2016 Tax Executives Institute – Liaison Meeting
E. Technical Matters
Question 2 – Benefits and Allowances Received from Employment
A folio chapter presents the Canada Revenue Agency’s (CRA) interpretation of Canadian income tax law (reflected in published technical interpretations issued by the Income Tax Rulings Directorate) as it applies to the most material aspects of the subject. Folio chapters are not complete summaries of case law. They also cannot explain how every provision of the law will apply to all situations. The comments in a folio relate to provisions of the law in force at the time of publication but are not a substitute for the law.
Income Tax Folio S2-F3-C2, Benefits and Allowances Received from Employment, does not discuss the CRA’s administrative policies for benefits and allowances received from employment. Paragraph 2.68 of this folio provides readers with links to these policies which are found in Guide T4130, Employers’ Guide Taxable Benefits and Allowances, and on the CRA webpage, Benefits and allowances.
Income Tax Folio Chapter S2-F3-C2 applies as of July 7, 2016. To allow for feedback from the tax community, a newly published income tax folio chapter has a 3-month comment period. Suggestions concerning the structure or content of Income Tax Folio S2-F3-C2 were to be emailed to firstname.lastname@example.org by October 7, 2016. Readers were advised that individual feedback would not be provided for any questions or comments submitted through this process. Your questions and comments will be reviewed and considered in depth, along with the other external stakeholder comments. Income Tax Folio S2-F3-C2 and its related History will be updated for any changes resulting from this review. In the meantime, we hope that the following information in response to your submissions to the folio will be of assistance.
a. Primary Beneficiary: “Incentive” Trips (Paragraph 2.25)
Would the CRA be willing to amend paragraph 2.25 to account for trips that may be viewed by employees as “incentives” but serve a primary business purpose for the employer? Such amendment would be consistent with prior CRA positions and case law, including Lowe v. The Queen,  D.T.C. 6226 (“However, where an employee receives a trip as an employment incentive or award and is not engaged in employment/business activities during a substantial part of each day of the trip, the employee is the primary beneficiary….”) (emphasis added).
Paragraph 2.25 does recognize that employment-related activities may be part of an incentive or award trip. The last sentence of paragraph 2.25 states “If the employee is required to perform employment duties during that trip, any benefit included in the employee’s income may be reduced for any actual employment-related activity.” In your example, if a sales team is awarded a trip for achieving a set target and they are required to perform employment duties while on the trip, then the benefit may be reduced to the extent of the employment-related activities.
b. Economic Advantage: Reimbursements (Paragraph 2.16)
Would the CRA be willing to amend paragraph 2.16 to clarify whether “detailed receipts” are always required? If detailed receipts are not always required, would the CRA consider changing the first sentence of paragraph 2.16 to read as follows, so that it is consistent with Guide T4130?: “A reimbursement is a payment made to repay an amount an employee spent on a specific expense and for which proper records are provided to the employer. When an employee is required to submit receipts or otherwise show the employer how the amount was spent….”
The definition of reimbursement is consistent with Verdun v The Queen, 98 DTC 6175, which states “Even when these amounts are not used for any improper purpose, and even when they are reasonable estimations of the costs, our law treats them as additional remuneration, not as reimbursement of expenses, which require detailed receipts being submitted for reimbursement.”
In most cases, the best evidence to show how much was spent is the actual receipt (for example, an invoice). The reference in Guide T4130 to “proper records” could include a copy of the invoice.
c. Third-Party Benefits: Reporting (Paragraphs 2.27-2.28)
Can the CRA comment on whether it would be willing to amend paragraphs 2.27 and 2.28 to clarify which party has the reporting responsibility for third-party benefits. For example, the guidance could state: “This means that a benefit may be included in an employee’s income even if the benefit is not provided by the employer. The obligation to report and/or withhold on the value of the benefit (see paragraph 2.69) is the responsibility of the person who has custody and control over which individual the benefit will be provided to, which custody and control may be had in either the employer or the third party depending on the circumstances.”
Given the compliance burden associated with third-party benefit reporting, would the CRA consider extending the same $500 reporting threshold that exists for non-cash gifts and awards received from an employer to benefits received from third parties?
Paragraph 2.69 discusses reporting and withholding requirements for all benefits and allowances received from employment. The folio does not provide details on the reporting requirements for either the T4 or the T4A. However, the paragraph does provide a link to the CRA webpage, T4A – Information for payers. A link to Guide RC4157, Deducting Income Tax on Pension and Other Income, and Filing the T4A Slip and Summary, is provided on that webpage. Guide RC4157 has a section on benefits from a third party. We will consider adding a link to RC4157 to paragraph 2.69.
The $500 reporting threshold that exists for non-cash gifts and awards received from an employer will not be extended to benefits received from third parties. However, the CRA has another administrative policy that could apply to relieve the reporting burden of third-party providers. If the amount of the payment is $500 or less, CRA generally waives the T4A reporting requirement unless income tax was withheld at source, in which case a T4A must be issued. This policy does not apply to group term life insurance benefits. Those benefits must be reported on a T4A regardless of the amount.
d. Value of a Benefit: Intangibles (Paragraph 2.26)
Can the CRA comment on whether it would be willing to amend paragraph 2.26 to include a version of the position in CRA Views Document 2010-0377261E5. For example: “The fair market value (…) is the amount included in the employee’s income under paragraph 6(1)(a). 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.”
Paragraph 2.26 will be revised to better reflect the Federal Court of Appeal’s decision in The Queen v Carroll A. Spence, 2011 FCA 200. In that case, the Federal Court of Appeal confirmed that the value of a benefit for purposes of paragraph 6(1)(a) is the fair market value, that is, the amount that the employee would have had to pay for the same benefit if there was no employer-employee relationship. The FCA also noted that “costs of the benefit to the employer is the wrong instrument to assess the value of the benefit. While in some cases … the cost may correspond to the fair market value, it is not necessarily the case.”
The FCA case is dated June 13, 2011, almost nine months after 2010-0377261E5 was published. The comments in the folio are consistent with those in Guide T4130.
November 15, 2016
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