The appellants were required to relocate their employees to different locations as part of their business. In addition to reimbursing direct moving costs, their relocation policy entailed paying the relocated employees a moving allowance in respect of incidental expenses (e.g., draperies, blinds and carpeting for the new premises, costs of cancelling and entering into new service contracts and the replacement of items which could not be shipped.) The appellants claimed ITCs in respect of the moving allowances on the basis of s. 174.
The Court found that, under s. 174(a)(iv), it is the supply, not the allowance used to acquire it, that must be "in relation" to the employer's activities. Noël J.A. stated (at para. 50):
If meaning is to be given to the words of subparagraph 174(a)(iv), regard must be had to the particular property or services contemplated and their intended use. Applying these criteria, property or services which are intended by the employer for the exclusive personal use of the employees and which lend themselves to such a use bear no relationship to the employer's activities. In contrast, property or services which can be used by the employees in the course of their employment activities, and which are intended for such a use, are in relation to the employer's activities.
Accordingly, as the "supplies of property or services which the allowances were intended to fund...were for the exclusive personal use of the employees" (para. 52), they did not qualify under s. 174.
Noël JA further noted obiter (at para. 54-55) that, as s. 174 deals with an "allowance," i.e., an amount for which the recipient "is under no duty to account and remains free to use...as he or she pleases," by legislative design there is no requirement for the payor of the allowance to assess the reasonability of the actual consumption or use of the property by the recipient of the allowance as would be required for a reimbursement referred to in s. 170(2)(a) and "that is why the test under paragraph 174(b) of the ETA is framed by reference to the reasonability of the allowance as a deductible expense in the hands of the employer."
The taxpayer sought a s. 259(4) GST rebate on a travel allowance paid to its employees for return trips to Edmonton or Vancouver, on the basis that the taxpayer was deemed to have paid them pursuant to s. 174(a)(iv). The principal purpose of these flights was to allow employees to take time off in more populated areas, a benefit that helped the taxpayer attract a larger pool of qualified employees. In issue was whether the travel allowance was paid for supplies of property or services acquired by the employees "in relation to" activities engaged in by the taxpayer, as required by s. 174(a)(iv).
Sheridan J. dismissed the taxpayer's appeal - although the allowances were helpful to the taxpayer's employee hiring and retention, the flight expenses were intended for employee recreation. There did not exist a "sufficient nexus" between the flights and the taxpayer's activities (para. 22).
It was not clear which authority governed - the test in ExxonMobil that the allowance not be for the "exclusive personal use" of the employees, or the test in Midland Hutterian Brethren that there be a "functional connection between the needs of the business and the goods" (or services, in this case). Sheridan J. suggested that the tests were essentially the same, but expressed in different terms (para. 20).
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|Tax Topics - Excise Tax Act - Section 259 - Subsection 259(4)||232|
18 May 2018 Interpretation 183321
Some of the volunteers at a registered charity are reimbursed for their expenses, or receive an allowance – but then donate those payments to the charity for a donation receipt. CRA stated:
The payment of the reimbursement or the allowance by the Charity and the later donation of all or part of this amount back to the Charity are two separate transactions for GST/HST purposes.
Accordingly, the expenses claimed by the charity for public service body (PSB) rebate purposes include the expenses recognized under ETA s. 175 or 174 as a result of its having paid the reimbursements or allowances – notwithstanding that those expenses in effect are donated back to it.
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|Tax Topics - Excise Tax Act - Section 175 - Subsection 175(1)||a charity gets a better GST/HST result if it exchanges cash with volunteers who donate their expenses||306|