7 November 2003 External T.I. 2003-0046815 - TAXABLE BENEFITS

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues:

Whether the reimbursement of certain costs incurred by a public office holder will result in a taxable benefit that is included in computing income under paragraph 6(1)(a) of the Act.

Position: Question of fact.

Reasons: Depending on the facts, a reimbursement of costs incurred by a public office holder may result in an income inclusion pursuant to paragraph 6(1)(a) of the Act.

Mr. Arthur Tam

CRTC
1 Promenade du Portage A. Seidel
Gatineau QC J8X 4B1 (613) 957-2058
2003-004681
November 7, 2003

Dear Mr. Tam:

Re: Taxable Benefits

We are writing in response to your telephone call of October 30, 2003, wherein you requested our comments with respect to the reimbursement of certain expenses incurred by a public office holder ("POH") and whether such reimbursement gives rise to a taxable benefit that must be included, pursuant to paragraph 6(1)(a) of the Income Tax Act (the "Act"), in computing income from employment.

Although we cannot provide any specific comments with respect to your situation, the following general comments may be of assistance.

Pursuant to the "Conflict of Interest and Post-Employment Code for Public Office Holders", a POH must divest of certain assets to avoid any potential conflict of interest. A POH may establish a blind trust to hold these assets while they are in public office.

A POH may be reimbursed, amongst other things, for reasonable legal, accounting and transfer costs related to the setting up of the blind trust, annual actual and reasonable costs to maintain and administer the blind trust and costs related to the dismantling of the blind trust when the POH leaves public office (the "Costs").

Issue - Taxable Benefit - Reimbursement of Costs

Does the reimbursement of the Costs give rise to a taxable benefit to the POH by virtue of paragraph 6(1)(a) of the Act?

Our Comments

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".

Whether or not the reimbursement of the Costs is a taxable benefit to the POH depends on whether the POH is considered to have received the reimbursement "in respect of, in the course of, or by virtue of" holding public office. This determination can only be made after a review of all of the particular facts relevant to the POH that is receiving a reimbursement.

Generally, where a POH is obliged to incur the Costs, either directly or in the blind trust, and the amount reimbursed to the POH or the blind trust matches the actual expenditures incurred, it is our view that such a reimbursement of actual Costs would not give rise to a taxable benefit. The Costs that have been reimbursed would not be deductible by the POH or the blind trust in computing income, nor would the Costs be relevant to the computation of any gain or loss on the disposition of any property by the blind trust.

However, in the situation where the POH is reimbursed for Costs that were incurred by the blind trust, and the POH does not use the proceeds of such reimbursement to reimburse the blind trust, it is our view that the reimbursement will give rise to a taxable benefit to the POH. In this situation, the POH would be receiving an amount that is "in respect of, in the course of, or by virtue of" their holding a public office and not an amount that is a reimbursement of expenses incurred by the POH. The amount received by the POH would be included in the POH's income pursuant to paragraph 6(1)(a) of the Act. The POH would not be entitled to any deduction in respect of the Costs by virtue of subsection 8(2) of the Act. The actual Costs incurred, to the extent that they are reasonable, will be deductible in computing the income of the blind trust.

Yours truly,

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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