21 September 1999 Ruling 9918673 - EMPLOYMENT INCOME - 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 Department.

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

RINCIPAL ISSUES: Tax consequences of electing to re-assign overtime pay or an allowance earned by performing administrative duties to the College for a specific purpose.

Position: Amounts are taxable to employees.

Reasons: : Payments in respect of overtime or an allowance constitute employment income, even when benefit is directed to another person pursuant to subsection 56(2) of the Act.

								1999-000272
XXXXXXXXXX						Karen Power, CA

September 21, 1999

Dear XXXXXXXXXX

Re: Advance Income Tax Ruling Request
XXXXXXXXXX

Further to our telephone conversation on September 13, 1999, (Power/XXXXXXXXXX), we confirm that you wish to withdraw your request for an advance income tax ruling dated XXXXXXXXXX for the above noted taxpayer. We have, however, provided you with the following comments which are of a general nature and are not binding on the Department.

You have asked us to provide comments on whether a faculty member can decline payments of an allowance which they have earned for carrying out administrative functions, or payment for teaching duties in excess of the normal teaching load, and direct the funds to the College to be used for a specific purpose.

Our Comments

Payments made in respect of accumulated vacation leave are included in computing employment income and are taxable under subsection 5(1) of the Income Tax Act (the "Act") when they are received, as indicated in paragraph 5 of Interpretation Bulletin IT-334R2 entitled Miscellaneous Receipts. The Department would take a similar view on payments in respect of overtime and the allowance earned for carrying out administrative functions.

In certain circumstances, amounts paid to another person at the taxpayer's direction are considered to be received by the taxpayer. Subsection 56(2) will cause an amount not received by a taxpayer to be added to the taxpayer's income if the following conditions are met:

a) there is a payment or transfer of property to a person other than the taxpayer;

b) the payment or transfer is pursuant to the direction of or with the concurrence of the taxpayer (this may be implicit);

c) there is a benefit to the taxpayer or a benefit the taxpayer wishes to confer on the other person; and

d) the taxpayer would have been taxable on the amount under some other section of the Act if it had been paid to the taxpayer.

The amount to be included in the taxpayer's income is the amount that would have been included in the taxpayer's income if the payment or transfer had been made directly to the taxpayer. The amount is considered to be income or capital to the taxpayer in the same way it would have been if the taxpayer had received the amount directly. Please refer to Interpretation Bulletin IT-335R entitled Indirect Payments.

In our view, the allowance or overtime pay provided to the College for specific purposes, which may include professional expenses should be included in the taxpayer's income under section 5 of the Act in the same manner as if they had received the allowance or converted their overtime bank to cash for their own use. It should also be subject to withholding for income tax, Canada Pension Plan contributions and Employment Insurance premiums.

Since the allowances or overtime banks are in effect donated to a Canadian college and since most colleges are registered charities, the taxpayer's may be able to claim a charitable donation credit pursuant to subsection 118.1(3) of the Act, which, depending upon the marginal federal tax rate of the faculty members, may offset the employment income inclusion. Thus, if the faculty member's top federal tax rate is 29% and other donations for a particular year exceed $200, since the charitable donation credit is equal to 17% of the first $200 of donations and 29% for donations in excess of $200, the charitable donation credit would offset almost all of the employment income inclusion. If the faculty member's tax rate is 26%, the charitable donation credit may more than offset the income inclusion.

A charitable donation credit will only be available if the taxpayer's are considered to have made a gift to the College. However, its questionable whether a gift has been made as generally a gift is made only if all three of the conditions listed below are satisfied:

a) some property - usually cash - is transferred by a donor to a registered charity;

b) the transfer is voluntary; and

c) the transfer is made without expectation of return. No benefit of any kind may be provided to the donor or to anyone designated by the donor, except where the benefit is of nominal value.

Also, as noted in paragraph 15(f) of IT-110R3 entitled Gifts and Official Donation Receipts, in the true sense of a gift, the donee must have unfettered right to the use of the gift. However, donations subject to a general direction from the donor that the gift be used in a particular program operated by the charity are acceptable, provided that no benefit accrues to the donor, the directed gift does not benefit any person not dealing at arm's length with the donor, and decisions regarding utilization of the donation within a program rest with the charity.

To determine whether a gift has been made in a particular situation, the Charities Division should be contacted. Please forward your request to Neil Barclay, Director, Charities Division, Policy and Legislation Branch, Place de Ville, 13th Floor, Tower A, 320 Queen Street, Ottawa, Ontario, K1A 0L5.

We trust that are comments will be of assistance.

Yours truly,

Roberta Albert, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch