Table of Contents

Subsection 6(1.1) - Parking cost

Subsection 6(2) - Reasonable standby charge

See Also

Szymczyk v. The Queen, 2014 TCC 380 (Informal Procedure)

separate personal use kilometers required for each vehicle used in year

The taxpayer's employer, General Motors of Canada Limited, assigned a new vehicle to the taxpayer and about 350 other senior managers or executives no less frequently than every three months for their personal and business use, but on the basis that they would identify shortcomings in the models and promote them to friends and acquaintances. The Minister authorized GM in 1982 to use a simplified method which computed the s. 6(1)(e) benefit based on the average cost of all GM passenger vehicles sold in Canada.

The taxpayer's appeal with respect to the Minister's assessment of an imputed benefit under ss. 6(1)(e) and 6(2) was allowed as the taxpayer was delivered a new vehicle every three months, the Minister's assumption that the taxpayer had 20,004 kilometers per year of personal use did not recognize that "the legislation requires that personal use be calculated separately for the periods that each automobile was made available" (para. 70), and no evidence as to actual personal use was advanced.

See also summaries under s. 6(1)(k) and General Concepts – Estoppel.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Estoppel Minister's authorization should not be set aside too readily as being contrary to law 317
Tax Topics - General Concepts - Onus Minister's "partly arbitrary" assumptions did not remove onus from taxpayer 317
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(k) late designation not permitted/rule-of-thumb method invalidated by s. 6(1)(k) 189

Keefe v. The Queen, 2003 DTC 1526, 2003 TCC 791 (Informal Procedure)

The taxpayer, who was the principal of a family company that was engaged in the supply and installation of commercial floor coverings, used a company-supplied vehicle to service clients (often after hours) within a 100-kilometre radius of his business premises and drove the vehicle approximately 40,000 kilometres per taxation year of which 7,500 kilometres were for non-employment purpose uses. Sheridan J. found that the taxpayer had satisfied the "substantially all" test in paragraph (d) of A in s. 6(2).

Words and Phrases
substantially all

Guignard v. The Queen, 2002 DTC 2092 (TCC)

The taxpayer and the Minister had agreed that the personal use by the taxpayer was 3,000 kilometres and that the total use was 19,000 kilometres, so that 84% of the use of the vehicle by the taxpayer (who was an automobile salesman) was in the exercise of his duties as an employee. Before finding that the taxpayer was not entitled to pro-ration under the formula in s. 6(2) (as modified by s. 6(2.1)), Hershfield T.C.J. indicated (at p. 2095) that since the primary focus of the provisions was to impute a benefit on the basis of availability of the vehicle, not its use, "it is arguable that limiting the full kilometre benefit deemed for availability to cases where personal use does not exceed 10% is arguably somewhat generous to the taxpayer" and that "in this context 'little' might just as arbitrarily be 1% or 2%". He also tentatively indicated (at p. 2097) that the pro-ration formula in s. 6(2) appeared to calculate all distances travelled by the vehicle regardless of who drove it.

McDonald v. The Queen, 98 DTC 2151 (TCC) (Informal Procedure)

The taxpayer, who was employed as a safety manager, was required to attend on a daily basis various parks and recreational facilities in the greater Toronto area, in addition to attending from time-to-time at an office downtown. The taxpayer's travel between his home and the various park locations was found to be business use given that it was more efficient and cost effective for his employer for him to begin or end such trips at his home. Furthermore, even if such trips were treated as personal use so that they amounted to 15% of the total use of his car, 85% of the total distances travelled represented "substantially all" of such distances give the elasticity of the word "substantially".

Deputy Minister of Revenue (Quebec) v. Rodrigue, 95 DTC 5475 (Que. C.A.)

The Court affirmed the trial judge's finding that an automobile had not been made available by the employer to the taxpayer for his personal use (for purposes of s. 41 of the Income Tax Act (Quebec)) when the automobile in question had been used 95% of the time for corporate purposes, as well as by other corporate employees for an undetermined proportion of the time, and that, as a matter of common sense, it could be seen that the vehicle had been provided to him primarily for the purposes of his employment.

Administrative Policy

17 July 2019 External T.I. 2018-0777951E5 F - Avantage automobile

where 2 related employers, only a single benefit under the formula is calculated for each automobile

Mr. X, is employed by two related corporations, Corporation A and Corporation B. Corporation A, acquired a car that it makes available to Mr. X, which he is free to use for personal purposes and must use for his work with both corporations. How should the taxable benefit to Mr. X be determined? CRA stated:

Mr. X, even if he holds two jobs concurrently, has only one benefit, being the use of a single automobile….

To the extent that a benefit arises for a particular automobile, the amount of that benefit should be determined by taking into account the kilometers traveled with the automobile in both employments.

Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Regulation 200 - Subsection 200(3) where 2 related employer, ss. 6(1)(e) or (k) benefit can be reported by either employer 168
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(k) two related joint employers should agree on which of them will T4 an employee for the single s. 6(1)(e) or (k) benefit for the car provided by one of them to him 99

6 October 2017 APFF Roundtable Q. 13, 2017-0709061C6 F - Calcul des frais pour droit d'usage

s. 6(2) standby charge based on leasing cost to the employer rather than the automobile’s cost to an affiliated purchaser

Holdco acquires an automobile and leases it to a related corporation (Opco) at a fair market value rent, with Opco making the automobile available to one of its employees. Element C in the s. 6(2) formula appears to contemplate that the cost of the automobile to a person (Holdco) related to the employer is to be taken into account – but 2014-0529991E5 appears to indicate that the leasing cost to Opco should instead be used. Should Opco use its leasing cost or Holdco’s cost for standby charge purposes? CRA responded:

In a situation where a lease and purchase are involved, the wording of the formula in subsection 6(2) requires that the cost of the automobile be added to C and that the leasing cost be added to E to calculate the reasonable standby charge for an automobile made available to an employee.

… This situation has been brought to the attention of the Department of Finance.

In specific situations, the CRA concluded that the reasonable standby charge should be based on the cost or the leasing costs of the automobile to the person who made the automobile available to the employee. In the example submitted … the CRA could consider only the leasing cost that Opco pays to Holdco for the purposes of the formula set out in subsection 6(2).

9 March 2017 External T.I. 2017-0689241E5 F - Avantages imposables relatifs aux automobiles ou autres véhicules

even where a vehicle available 24 hours a day to a fire chief is clearly marked as a firefighter car, the employer must still estimate whether there is a personal-use benefit

Fire chiefs are on call 24 hours a day throughout the year with a clearly identified vehicle, equipped with all emergency equipment to enable them to get to an emergency scene quickly. Should a benefit be included in their employment income?

After noting the exclusion from “automobile” (and, thus, from the standby charge and operating expense rules) for clearly marked emergency response vehicles, CRA stated:

[A]n emergency response vehicle…is generally considered to be clearly identified if it is readily identifiable by the general public as a police or fire vehicle because of symbols or lettering on the exterior of the vehicle. …

[I]f … a vehicle that does not meet the definition of automobile, there is still a benefit to the employee under paragraph 6(1)(a) where the vehicle is used for personal purposes. The employer must make a reasonable estimate of the fair market value of that benefit for the employee and include it in the employee's income. [T]he amount to be included in income as a benefit for a vehicle that does not meet the definition of automobile is generally less than the amount that results from the computation of an automobile benefit.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Automobile emergency vehicle's markings must clearly mark it as police or fire vehicle 76

12 January 2017 Internal T.I. 2016-0636911I7 - Standby Charge - PST and the cost of an automobile

cost for standby charge purposes reduced by sales tax reduction attributable to trade-in

Under ETA s. 153(4)(c) and a similar approach under the western provincial sales tax regimes, the sales tax payable where a trade-in allowance is provided on a purchased automobile is reduced accordingly. CRA confirmed that this also has the effect of reducing the automobile cost for standby charge purposes.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 6 - Subsection 6(7) car standby charge is reduced for the sales tax reduction occurring where a trade-in allowance is provided on the car purchase 153

7 October 2016 APFF Roundtable Q. 5, 2016-0652861C6 F - Véhicules électriques - rabais

Quebec government assistance does not reduce cost of purchased vehicle, but treated as compensation to dealer-lessor prorated over term of lease

By virtue of a program put in place by the Quebec government, a subsidy, which can amount to $8,000, is offered where an electric vehicle is purchased or rented. Where the car dealer is a partner in this "Drive Electric Program" and the participant authorizes the government to pay the rebate directly to the dealer, this assistance is actually a deposit paid or to be paid to the dealer on the purchase or lease. In determining the taxable benefit from employee use, should the purchase price (or rental cost) be determined before or after the application of the rebate? (b) What is the incidence of the subsidy on CCA where the pre-tax cost of the vehicle is $25,000, $35,000 or $45,000? CRA responded:

[I]n the case of a purchased electric vehicle… the "cost of the automobile to the employer" in the formula in subsection 6(2) would not be reduced by the amount of financial assistance provided… .

[I]n the case of a leased electric vehicle… it would be reasonable to consider that the deposit is an amount payable to the lessor. Thus, the amount of the financial assistance paid would be a lump sum payment that should be prorated over the term of the lease for the purposes of calculating the “total amount that can reasonably be regarded as payable to the lessor” in subsection 6(2).

Finally, where the participant receives the rebate directly from the Québec government…the financial assistance would not reduce the reasonable standby charge for use of an automobile.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(e) use of manufacturer’s electricity-use standard 88
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21) - Undepreciated Capital Cost - A installation cost included 31
Tax Topics - Income Tax Act - Section 13 - Subsection 13(7) - Paragraph 13(7)(g) vehicle assistance paid indirectly (to dealer) covered 225
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21) - Undepreciated Capital Cost - A cost not reduced under general principles by government assistance 137

18 February 2015 External T.I. 2012-0471731E5 F - Déductibilité du droit d’usage pour automobile

no reduction in benefit amount for benefits provided by employee to employer

The “Employer” provides a commissioned sales person (who satisfies the s. 8(1)(f) conditions) with an automobile, and includes in the computation of the employee's income a taxable benefit for the use of the automobile. However, the automobile is painted an unusual color and displays the logo of the Employer for promotional reasons.

May the taxable benefit to the employee, for the use of automobiles, be reduced to reflect the fact that the employer has a commercial advantage? If not, may the employee deduct an amount for advertising in the calculation of employment income? CRA responded:

[T]he fact that there is a commercial benefit to the employer does not change in any way the calculation of the benefit to be included in the employee's income under paragraph 6(1)(e) and 6(1)(k). In essence, this calculation takes into account the amounts that the employee (or a person related to the employee) refunds to the employer (or a person related to the employer) for a reasonable fee for the right of use of the automobile and for the reasonable cost of operation of the automobile, respectively. Thus no exception, such as the one you described in your application, is specified in these provisions which would allow a reduction of the taxable benefit to the employee.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 8 - Subsection 8(1) - Paragraph 8(1)(f) reduced auto enjoyment not an expenditure 144

5 November 2014 External T.I. 2014-0529991E5 F - Avantage pour automobile-personne liée

standby charge computed based on cost to auto owner which is related to employer

The board members of a Quebec non-share corporation that is exempt under s. 149(1) ("Entity") are appointed by "Municipality." During a Municipality employee’s temporary assignment to a position of employment with Entity, Municipality agreed to continue making an automobile available to such employee (“Employee”) in connection with such temporary employment.

After assuming that Municipality was related to Entity, and after noting that where an employer or a related person makes an automobile available to an employee which can be used for personal purposes, a standby charge benefit must computed under ss. 6(1)(e) and 6(2), as well as an automobile operating expense benefit under s. 6(1)(k), CRA stated:

With respect to…the standby charge… it is the cost of the automobile, or the cost of renting the automobile, to the person who makes the automobile available to the taxpayer, which enters into the computation of the benefit. Since…Municipality is a person related to the Entity and it will make the automobile available to Employee, the standby charges will have to be computed using the cost of the automobile to Municipality.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 251 - Subsection 251(2) - Paragraph 251(2)(b) - Subparagraph 251(2)(b)(i) control of non-share corp references who can appoint board 131

7 February 2014 External T.I. 2014-0516921E5 F - Crédit et frais résiduels

employer potentially can choose to prorate terminal credits or deficiencies (based on sale price on car lease termination relative to residual value) in applying formula

A corporation ("Employer") leases automobiles from an arm’s length lessor ("Leasing Corporation") and provides the automobiles to employees. Under the lease terms, in the event of cessation of use of an automobile (e.g., from theft), and on the return of the automobile on termination of the lease, the Employer receives a credit (a “Terminal Credit”) or must pay a deficiency (a “Terminal Loss”) based on comparing the sale price to the residual value stated in the lease. How were such credits or terminal payments to be treated? CRA stated:

Where the Employer surrenders an automobile to the Leasing Corporation, generally at the end of the lease, the Employer will have to pay the Terminal Loss or will receive a Terminal Credit, depending on the amount obtained by the Leasing Corporation when the automobile is sold. At first glance, this amount must increase or decrease, to no more than zero, the leasing expenses for the Employer for the year of surrender of the automobile.

Alternatively, the Employer may prorate the Terminal Credit or Terminal Loss over the term of the lease, provided that the employee has consented thereto and that none of the years of the lease are statute-barred under the Act. The Employer's choice will be reflected in the calculation of the employee's taxable benefits through Element E of the formula described earlier. The calculation of standby charges and operating expense benefits will therefore be adjusted according to the method chosen by the Employer.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21) - Depreciable Property lease/sale distinction established based on the legal relationship 93
Tax Topics - General Concepts - Substance lease characterized as lease unless its actual legal effects differ 142
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21) - Undepreciated Capital Cost - A lease under which lessee bore all risk implicitly treated as lease rather than purchase 171

10 September 2012 External T.I. 2012-0446921E5 F - Avantage pour automobile

transfer to related corp stepped down cost for standby charge purposes to FMV

In 2012, Corporation A disposed of an automobile that had been acquired by it in 2009 at a cost of $40,000 and used by a joint employee of it and a related corporation (Corporation B) to Corporation B, for consideration equal to its fair market value of $25,000, with the automobile continuing to be used by the employee in the course of such joint employment. Following this transfer, what is the automobile cost for automobile standby charge purposes? CRA responded:

[E]lement "C" of the formula in subsection 6(2) refers to the cost of the automobile to Corporation B.

CRA went on to note that if the two corporations elected under s. 85(1), this result would not change as s. 85(1)(e.4) nonetheless deemed the cost to equal fair market value for s. 6(2) purposes.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 85 - Subsection 85(1) - Paragraph 85(1)(e.4) car acquired at cost equal to FMV for standby charge purpose notwithstanding s. 85(1) election 143

6 September 2011 Internal T.I. 2011-0401191I7 F - Automobiles mises à la disposition des employés

standby not computed for months in which automobiles in storage and unavailable for use

Executives were each provided with an automobile that was not suitable for winter use, so that for 5 months of the year it was kept in a storage yard with the executive not being given rights of access. The Directorate stated:

to the extent that it can be demonstrated that employees have no rights, under any circumstances, to use Automobiles during the months of November, December, January, February and March, we are led to believe that executive employees do not have access to or control over Automobiles when they are in storage. That prohibition on use should generally be evidenced in writing … . In such a case, the benefit for reasonable standby charges should be calculated on the basis that the Automobiles are made available to the executive employees for a period of 7 months per year.

27 June 1995 T.I. 950505 (C.T.O. "Automobile Benefits")

Where a corporate employer has entered into a three-year agreement with an automobile dealer whereby the dealer agrees to make an automobile available to the corporation at no cost to the corporation in order that the use by the corporation of the automobile will provide publicity for the automobile dealer, then the value of the consideration paid by the employer for the automobile will be considered to be the fair market for lease of the automobile where the value of the publicity or advertising has not itself been qualified.

15 February 1994 T.I. 933573 (C.T.O "Automobile Standby Charges")

Re: Consequences of the sale of an automobile for fair market value proceeds by the employer to a related corporation, after which the automobile continues to be made available to the employee.

Subsection 6(2.1) - Automobile salesperson

Subsection 6(2.2)

Administrative Policy

88 C.R. - "Automobile Rules" - "Employee Benefits"

RC considers "primarily" to be more than 50% - generally, by reference to the number of kilometres driven.

Subsection 6(3) - Payments by employer to employee


S. 6 expands the scope of what otherwise would be considered to be income from and office or employment, albeit not radically so. In the Curran case, Martland J. indicated that a predecessor of s. 6 (s.24A of the 1948 Act) "was essentially a provision dealing with onus of proof and deemed certain payments as therein defined to be payments within s. 5, unless the recipient could establish affirmatively that a payment did not reasonably fall within the provisions of paras. (i), (ii) or (iii) of s. 24A" (now s. 6(3)(c), (d) or (e)).

S. 6 potentially is engaged where an individual receives an amount while an officer of, or while in the employment of the payer (s. 6(3)(a)) or on account of, in lieu of payment or in satisfaction of an obligation arising out of an agreement made by the payer with the individual immediately prior to, during or immediately after a period the individual was an officer of, or in the employment of, the payer (s. 6(3)(b)). Where either of these conditions is satisfied, the amount received will be deemed for purposes of s. 5 to be remuneration for services rendered as an officer or during the period of employment (so that the amount will be included in income as income from an office or employment) unless it is established that irrespective of the form or legal effect of the agreement under which the amount was received, it cannot reasonably be regarded as having been received as described in any of ss. 6(3)(c) to (e).

S. 6(3)(c) refers to an amount received as consideration (or partial consideration) for accepting the office or entering into the contract of employment.

S. 6(3)(d) refers to an amount received as remuneration (or partial remuneration) for services as an officer or under the contract of employment.

S. 6(3)(e) refers to an amount received in consideration (or partial consideration) for a covenant with reference to what the officer or employee is, or is not, to do before or after the termination of the employment.

S. 6(3)(e) will result in the recognition of employment income when an employee receives a sum on termination of employment in consideration for giving a covenant not to solicit clients of the former employer (Morissette), or some other form of non-compete covenant. However, if the terminated employee agrees to provide a non-compete covenant in circumstances where he or she already has a clear contractual entitlement to receive a specific sum of liquidated damages for the termination of employment, the liquidated sum of damages will not be taxable under s. 6(3)(3) (Girouard). Furthermore, the giving of a restrictive covenant by an individual may not result in an income inclusion under s. 6(3)(e) if no amounts paid to the taxpayer are allocable to the giving of the covenant (115 cf. Richstone).

Where an amount received by an individual for the giving of a restrictive covenant is included in his or her income under s. 6(3)(e), it will not also be included in his or her income under draft s. 56.4(2): draft s. 56.4(3)(a). In the absence of these provisions, a lump sum received by a taxpayer for agreeing in his or her contract of employment to a restrictive covenant might not be taxable as employment income (see Beak v. Robson).

Where on the sale of shares of a company by the owner-manager, monthly payments thereafter received by the individual from his form employer will not be taxable under s. 6(3)(d) or (e) if the payments in substance are not consideration for services or restrictive covenants provided by the former employee (Wilson), even perhaps if the parties purported to agree that the payments would be consideration for consulting services that they had no intention of requesting or providing, as the case may be (Beaupré Estate).

Incentive arrangements or pre-emptive rights that likely would have been taxable in any event under s. 6(1)(a) have also been found to be deemed by s. 6(3)(c) or (d) to give rise to taxable remuneration (Markin, Moss).


Morissette v. Canada, 2008 DTC 6513, 2007 FCA 16

non-solicitation covenant taxable

A lump sum received by the taxpayer, who was an investment advisor employed by a Canadian securities firm, on the termination of his employment was found to constitute consideration for his covenant (contained in the termination agreement) not to solicit clients given that "the non-solicitation covenant is at the heart of the termination agreement, which makes no mention of any sale of assets" (para. 16).

Markin v. The Queen, 96 DTC 6483 (FCTD)

The taxpayer's employer granted him and other employees a contractual right to receive an undivided 0.5% of net profits attributable to the interest of the employer in oil and gas properties. The amount received by the taxpayer upon his termination of employment and his exercise of the previously granted right to exercise an option to require his employer to purchase his rights under the relevant agreements for cancellation was deemed by ss.6(3)(b) and (d) to be an employment benefit: the amount was received by him in satisfaction of an obligation arising out of the agreements made by him and the employer during the taxpayer's employment by it, and the amount could reasonably be regarded as remuneration or partial remuneration for services under his contract of employment.

The Queen v. Blanchard, 95 DTC 5479 (FCA)

As part of an offer of a position at the Fort McMurry processing plant of Syncrude Canada Ltd., the taxpayer was given the option of participating in a housing program which, among other things, provided that upon the cessation of his employment with Syncrude Canada, he would be guaranteed a market for the sale of his Fort McMurray home at no commission and at a price not to be less than a stipulated minimum price. It was found that because the agreement arising from the taxpayer's participation in the housing program was truly intended in order to induce the taxpayer to accept employment, a payment received by the taxpayer for his agreement to terminate participation in this program was deemed to be employment income under s. 6(3), i.e., the payment was in satisfaction of a (contingent) obligation of Syncrude Canada arising out of an agreement made by Syncrude Canada entered into between him and Syncrude Canada either at the time of or before the period of his employment.

McNeill v. The Queen, 86 DTC 6477, [1986] 2 CTC 352 (FCTD)

A Quebec air traffic controller received from his employer, the federal government, the sum of $15,571 to compensate for house mortgage expenses that he might incur outside Quebec, and the sum of $2,155 which was computed as a percentage of his income, as part of a Department of Transport policy to seek to relocate controllers with anglophone ancestry outside Quebec so as to avoid labour relations problems. "Money paid as an incentive to compensate for a capital loss brought about by an involuntary transfer while remaining in the employ of the same employer and providing no economic benefit to either party is not caught by subsection 6(3)."

Moss v. MNR, 63 DTC 1359 (Ex Ct)

Under the agreement pursuant to which the taxpayer became sales manager of his employer ("Prairie Cereals"), Prairie Cereals and its controlling shareholder agreed that in the event that Prairie Cereals agreed to sell its assets, the taxpayer would have a pre-emptive right to purchase those assets for 90% of the stipulated price. Approximately a year later, while the controlling shareholder was negotiating an asset sale by Prairie Cereals, the taxpayer agreed with Prairie Cereals and the shareholder that in consideration for the payment to him of $34,600 upon completion of the sale, he would release Prairie Cereals and the shareholders from the terms of the previous agreement.

Thorson P. found that the $34,600 was taxable under s. 25 of the pre-1972 Act. The release agreement pursuant to which it was paid was made while the taxpayer was employed by Prairie Cereals, and the amount paid pursuant to that agreement related back to the taxpayer's prior and pre-emptive right under the agreement pursuant to which he became an employee. That pre-emptive "right was as much part of the consideration for accepting the office of sales manager and entering into the contract of employment and as much remuneration for services as an officer or under the contract of employment as the regular monthly remuneration (p. 1365). Accordingly, the $34,600 could reasonably be regarded as having been received by the taxpayer as partial consideration for his acceptance of the office of sales manager, or as partial remuneration for services as an officer of Prairie Cereals or under his contract of employment.

Curran v. Minister of National Revenue, 59 DTC 1247, [1959] S.C.R. 850

Martland J. indicated (at p. 1253) that s. 24A of the 1948 Act "was essentially a provision dealing with onus of proof and deemed certain payments as therein defined to be payments within s. 5, unless the recipient could establish affirmatively that a payment did not reasonably fall within the provisions of paras. (i), (ii) or (iii) of s. 24A".

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 3 185

See Also

Desmarais c. La Reine, 2008 DTC 3830, 2006 TCC 417

A lump sum of $350,000 that was paid to the taxpayer, who was a broker at Nesbitt Burns, upon his signing an employment contract with another broker (Desjardins) was found to be includable in the taxpayer's income under s. 6(3) given that the sum was paid to him as an incentive to sign the employment contract and given that there was no evidence that the sum was paid to acquire the taxpayer's goodwill and (para. 10) "in any case, clients are free to choose their advisor".

Richstone v. MNR, 72 DTC 6232, [1972] CTC 265 (FCTD), briefly aff'd 74 DTC 6129 (FCA)

The taxpayer sold their shares pursuant to a deed of sale that provided that $150,000 was paid at the time of signing the deed of sale as the purchase price for their shares, and that a further $150,000 was payable in ten annual instalments in consideration for the sale by them of their right to engage in the bakery business and their right to use the name "Richstone" in relation to the business for a 25-year period. A further clause stipulated that further consideration for the ten $15,000 instalments was the vendor's covenant not to engage in the bakery business for 25 years within Quebec or Ontario and not to use the Richstone name for 25 years within that territory. In finding that the $15,000 deposit were taxable under s. 25 of the pre-1972 Act, Collier J. found that the non-compete covenant was of value to the purchaser (rather than, as alleged, a "mere appendage" to the share sale), that any unenforceability of the non-compete covenant did not detract from its binding character pending any challenge, that the lack of intention of the taxpayers ever to go into business again was irrelevant, and that the taxpayers were employees of one of the five payors of the instalments until the time of the deed of sale.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Illegality covenant respected until invalidated 73
Tax Topics - Income Tax Act - Section 6 - Subsection 6(3) - Paragraph 6(3)(e) 70

Wilson v. MNR, 60 DTC 115 (TAB)

At the same time as the taxpayer entered into an agreement for the sale of his majority interest in a company for a cash sum, he entered into an agreement with the company for the payment of $12,000 in monthly instalments of $200 and agreed to resign as president and director of the company. Mr. Fordham, in finding that the monthly payments were not taxable under s. 25 of the pre-1972 Act, stated (at p. 117) that "I can find nothing that is not merely indicative of a plain sale and purchase and must hold that nothing pointing to any services rendered, or to be rendered by the appellant, is discoverable".

Administrative Policy

S2-F3-C1 - Payments from Employer to Employee

Requirement for payments to have the nature of remuneration

1.6 In addition to the conditions described in [the paraphrase of s. 6(3) above], the payment must have the nature and quality of salary, wages, commissions, or remuneration. The method of calculating the amount or any steps taken to enforce payment under the terms of the contract (including lawsuits) do not change how subsection 6(3) is to be applied.

13 September 2012 Internal T.I. 2012-0442671I7 F - Dédommagement pour la perte de bénéfices

damages received by former employees of insolvent company for cancellation of their life insurance coverage were received in lieu of remuneration for their employment services

The former employees and retirees of a bankrupt corporation (the "Employer") received a lump for the cancellation of their rights in a group insurance plan and respecting legal costs incurred to recover the lump sum. The lump sum received for the Plan cancellation included compensation for the loss of medical and dental coverage and hospitalization coverage for themselves and their dependents (respecting the "Medical Plan"), as well as the loss of life insurance coverage (the "Coverage"). Damages also were claimed for the amounts owing under the Employment Standards Act (the "Dismissal Amount").

After finding that the portion of the lump sum allocable to the termination of the Medical Plan was taxable, and in going on to find that that portion allocable to the lost Coverage was taxable to the recipients under s. 6(3), the Directorate stated:

[T]he portion of the lump sum that relates to the Coverage is a reasonable substitute paid in lieu of the employer's obligation to provide the Coverage

and went on to note that the meaning of “in lieu of” was not narrowed by the French version. Furthermore, that amount

was paid "by reason" or "in consequence of" an obligation imposed by the employment contract …[and t]herefore … "arises" from the employment contract.

Finally, it did not matter that the payer was the trustee, as it was deemed by s. 128(1)(a) to be an agent of the Employer – and it was “not unreasonable to conclude that the portion of the lump sum related to the Coverage is also an amount received as damages for services that the Objectors have rendered to the Employer.”

Words and Phrases
in lieu of arises pursuant to
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a) - Subparagraph 6(1)(a)(i) damages received after 2011 by employees of an insolvent company for cancellation of their medical plan have become taxable 306
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Death Benefit damages received for loss of life insurance coverage were not rendered a death benefit under the surrogatum principle 303
Tax Topics - Income Tax Act - Section 8 - Subsection 8(1) - Paragraph 8(1)(b) legal fees paid to recover damages for employer cancellation of insurance coverage, and medical plan, qualified and did not qualify, respectively 337

Dual-purpose payments


Where a payment is made for more than one purpose and part of the payment does not have the nature and quality of salary, wages, commissions, or remuneration or is not in respect of a covenant, that part of the payment is not included in the individual's employment income. …

Example 1: inclusion of signing bonus subject to repayment

As an inducement to a prospective employee to accept an employment offer, an employer agrees to make a payment when the individual signs the employment contract. The individual starts work immediately and agrees to work for the employer for a minimum of two years. Their arrangement is that if the individual does not meet all the requirements of the employment contract, the full amount of the inducement payment will have to be repaid. Since the payment is made based on an agreement signed immediately before the individual's employment and is paid for entering into the employment contract, subsection 6(3) deems the payment to be employment income.

Example 2: non-inclusion of scholarship received before employment

An individual receives a corporate-sponsored scholarship but does not work for the corporation at the time the scholarship is received. Several years later, after graduating, the individual accepts employment with the corporation that funded the scholarship. In this case, since the employer-employee relationship did not exist at the time the scholarship was received, subsection 6(3) does not apply to deem the scholarship to be employment income. However, the payment is considered scholarship income.

Example 3: non-inclusion of termination damages

An individual and an employer sign an employment contract that…does not provide for any payments at or after the end of employment. After a few years, the employer terminates the employment contract. The individual sues the employer. The lawsuit is settled and the individual receives a lump-sum amount to compensate for the loss of employment. Since the lump-sum amount was not provided for in the employment contract, subsection 6(3) does not apply… . However, since the amount was compensation for the loss of employment, the payment is considered a retiring allowance… .

Example 4: post-employment inclusion of amounts negotiated during employment

Based on an agreement negotiated during employment, an employee receives a monthly payment from the employer for inventions and designs that the employee creates during employment. The agreement specifies that the employer will retain the rights to these inventions and designs. The employee quits, but continues to receive the monthly payments for several years. Because the payments are based on an agreement made during employment for work completed during employment, subsection 6(3) deems the payments received after the end of employment to be employment income.

Example 5: inclusion of payment for client list on employment termination

At the time of hiring, an employee and an employer verbally agree that the employer will purchase, at the end of employment, any client list that the employee develops during employment. The purchase will ensure that the employee does not compete against the employer in the future. At the end of employment, the employer pays the employee an amount for the client list. Because the payment is provided for in an agreement made during employment in consideration for what the employee is not to do after the end of employment, subsection 6(3) deems the payment to be employment income.

IT-196R2 "Payments by Employer to Employee"

Locations of other summaries Wordcount
Tax Topics - General Concepts - Payment & Receipt 37

Paragraph 6(3)(b)


Greiner v. The Queen, 81 DTC 5371, [1981] CTC 477 (FCTD), aff'd 84 DTC 6073, [1984] CTC 92 (FCA)

A $200,000 payment received by Greiner pursuant to an agreement which he had entered into with the payer corporation approximately 2 months before becoming president of the payer corporation (and thereafter managing the operations of the corporation of which he had, up until that time, been an employee) was fully taxable.

Quance v. The Queen, 74 DTC 6210, [1974] CTC 225 (FCTD)

The taxpayer was dismissed without notice and paid his regular salary for 9-1/2 months. Although the taxpayer's solicitor had demanded more, the taxpayer determined that the costs of litigation did not merit bringing an action. Cattanach, J. held that the amounts received by the taxpayer fell within s. 6(3) because they were received in satisfaction of an obligation arising out of the employment contract, namely, the obligation to give reasonable notice or salary in lieu thereof. In addition, it was stated that since the damage payments were intended to replace the employment income of which he had been deprived, they had the quality of income.

Administrative Policy

28 July 2017 External T.I. 2017-0685961E5 - Taxation of Settlement Amounts

settlement amounts paid after repudiation of post-retirement health benefits were deemed employment income

A Settlement Amount was provided to current and former employees of the Employer to settle a grievance regarding the cancellation of various post-retirement benefits (PRBs) provided under a private health services plan and group term life insurance policy. The Settlement Agreement stated that the Settlement Amount was paid to them “in consideration of the loss of entitlement to PRBs, the alleged violation of their Charter rights and discontinuing litigation … as general damages for future loss of PRBs...” The Settlement Amount was generally calculated with reference to an employee’s pensionable years of service, up to a stipulated maximum, except that those with less than one year of such service were paid a flat amount.

After stating it to be unlikely that the Settlement Amount (which also was paid to current employees) was a retiring allowance, and after referencing the application of s. 6(3) to a payment provided by an employer “to an employee (or former employee) to satisfy an obligation outlined in a written or oral agreement made with his or her employer (or former employer), either immediately before, during, or immediately after employment,” CRA stated:

[I]t appears that part or all of the Settlement Amount was for the loss of future PRBs. Accordingly, to [that] extent … subsection 6(3) … will deem the payment to be employment income in the year it is received.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Retiring Allowance settlement amount (re post-retirement benefits reduction) also paid to current employees likely not retiring allowance 163
Tax Topics - Income Tax Act - Section 5 - Subsection 5(1) amounts received in settlement of employment grievances to be s. 5 income on general principles 203

Paragraph 6(3)(c)


The Queen v. Lao, 93 DTC 5251 (FCTD)

An allowance of $22,500 which the taxpayer received to compensate him for a portion of the higher price he would have to pay for a house on moving from Edmonton to Toronto on the commencement of employment with his employer, was found not to be an employment benefit under s. 6(1)(a) or an amount referred to in s. 6(3)(c).

Administrative Policy

S3-F9-C1 - Lottery Winnings, Miscellaneous Receipts, and Income (and Losses) from Crime

Inducements received to change employment

1.7 When an employee receives an amount which is intended as an inducement to leave his or her present employment and accept new employment, the payment is included in the recipient's income. Subsection 6(3) will normally apply to include in income such an inducement paid to an employee by a prospective employer. Furthermore, regardless of who pays the amount, any payment received by an employee as an inducement to accept new employment is considered to be for the purpose of acquiring that taxpayer's experience and capabilities and to be by its nature an income item. For example, in a situation in which a payment is made by a shareholder to induce an individual to resign a managerial position and accept new employment, the payment would be included in the individual's income.

Paragraph 6(3)(d)


Choquette v. The Queen, 74 DTC 6563 (FCTD)

The taxpayer received a lump sum in consideration for relinquishing his rights under his existing employment contract, and it was agreed that he would continue on with the company as an employed consultant. In finding that the sum was taxable under s. 25 of the pre-1972 Act, Décary J. found that, in applying s. 25(a) and subparagraph (ii), the payment could reasonably be regarded as having been received in accordance with an employment contract.

MNR v. Beaupré Estate, 73 DTC 5255, [1973] CTC 316 (FCTD)

After a disagreement, the vice-president ("Beaupré) of a company was told by the president ("Phillips") that he didn't want to see him any more. Two agreements were signed under which Beaupré sold his shares in the company to Phillips for $12,000 and agreed to be a consultant for consideration of $48,000 consisting primarily of monthly payments to be made by the company which could continue after Beaupré's death. When the company ceased to make the payments, Beaupré obtained a judgment in the Quebec Superior Court ordering the making of the payments on the basis that the consultancy contract was fictitious and that in reality there was one contract for the sale of shares. Since the payments were received for the sale of shares and not to prevent competition, s. 25 of the pre-1972 Act (now s. 6(3)) also did not apply to include them in his income.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Evidence 43

See Also

Gowling v. MNR, 78 DTC 1624 (TRB)

Following the termination of the taxpayer's employment, but before he ceased performing his duties, he agreed with his employer that in addition to receiving $3,500 in full settlement of all claims he might have arising from his dismissal, he should be paid a consulting fee of $6,000 in advance for the following 12 months pertaining to any consulting work required of him by his former employer. In fact, no such consulting services were requested of him. Mr. Tremblay found that the taxpayer had failed to establish that the $6,000 could not reasonably be regarded as having been received by the taxpayer as remuneration for services as an officer or under the contract of employment.

Administrative Policy

20 March 2013 Internal T.I. 2013-0480201I7 F - Montants forfaitaires - XXXXXXXXXX

amounts paid to workers in wage-discrimination suit that were in excess of reasonable amount for rights’ violations or non-pecuniary damages would be employment income

In discussing the treatment of lump sums paid to federal employees following a finding by the Human Rights Tribunal that a discriminatory practice had been committed at their workplace and pursuant to a settlement agreement concluded with the Treasury Board, CRA stated:

[I]f the amounts paid to the Workers … represent an award to compensate for or replace a source of income that would have been included in their income as employment income, these amounts could be income from an office or employment of the Workers. …

However, if the evidence shows that the amounts … as damages for the violation of their rights under the Canadian Human Rights Act, they may not have to be included in the computation of the income of the Workers. If it is shown that the amounts are intended to compensate the Workers for non-pecuniary damage and that they are reasonable, they may not be taxable. In this regard, any amount that exceeds a reasonable amount would nevertheless be included in the employment income of the Workers under subsection 5(1) or 6(3).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 110.2 - Subsection 110.2(1) - Qualifying Amount portion of wage discrimination award that related to loss of salary (based on days’ worked) would be qualifying amount 170

Paragraph 6(3)(e)


Girouard v. The Queen, 80 DTC 6205, [1980] CTC 284 (FCA)

After dismissing its financial director but before the effective date of the dismissal, a private hospital, by its board, resolved to pay him $30,000 as liquidated damages as it was obligated to do pursuant to his employment contract and on the following day executed with him a second contract confirming the payment to him of $30,000 as liquidated damages and containing his covenant not to work for another private hospital in Quebec for two years, and not to criticize the hospital. It was held that s. 6(3)(e) did not apply because at the time of entering into the second contract the hospital already owed him (and admitted owing him) $30,000, and the $30,000 accordingly should not be regarded as consideration for his covenant.

Richstone v. MNR, 72 DTC 6232, [1972] CTC 265 (FCTD), briefly aff'd 74 DTC 6129 (FCA)

After difficult negotiations, the taxpayers agreed to sell their shares in a bakery company to their brothers for $150,000, plus a further $150,000 for a non-compete covenant. Notwithstanding submissions of the taxpayers that they regarded their shares as being worth more than $300,000 and that the covenant likely was unenforceable, it was found that the covenant had value to the purchasers and that the payments in consideration of the covenant were employment income.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Illegality covenant respected until invalidated 73
Tax Topics - Income Tax Act - Section 6 - Subsection 6(3) 208

See Also

No. 115 v. MNR, 53 DTC 338 (ITAB)

On the sale of shares of a company of which the taxpayer was the controlling shareholder ("Company A") for $540,000, Company A agreed to pay the taxpayer $250,000 per month for 20 years in consideration for his agreement not to engage in the lobster business in two particular counties during the 20-year period. Almost ten years later, a new company ("Company B", of which the taxpayer eventually became the president) was formed, purchased the assets of Company A and assumed the obligation to continue paying $250 per month to the taxpayer in consideration for his covenant to continue observing the non-compete covenant.

Mr. Monet found that neither Company B nor the taxpayer were engaged or even interested in the lobster business, that the covenant was inserted only to make the obligation to make the monthly payments legally enforceable, and that the payments received by the taxpayer from Company B were not paid to him in consideration or partial consideration for the non-compete covenant. He further observed but for the words "irrespective of ... the form or legal effect thereof", the taxpayer would not have had any case at all.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Substance 101

Beak v. Robson (1942), 15 TC 33 HL

In finding that a lump sum of £7,000 paid to the taxpayer in consideration for his agreeing, in his contract of employment, to a restrictive covenant, was not taxable as a "profit from the office" of director and manager, Viscount Simon L.C. stated (at p. 41):

"The sum of £7,000 is not paid for anything done in performing the services in respect of which Mr. Robson is chargeable under Schedule E. The consideration which he has to give under the covenant is to be given not during the period of his employment, but after his termination."

Administrative Policy

27 June 2014 External T.I. 2014-0526931E5 F - Vente d'une liste de clients par un employé

payment to departing employee for customer list was deemed income under s. 6(3)

An employer agrees to purchase the customer list of an employee prior to his cessation of employment. CRA stated (TaxInterpretations translation):

[F]rom the viewpoint of view of the employee or former employee, the amount received from the employer or former employer for a client list is deemed to be remuneration by virtue of subsection 6(3). ...

[A]lthough the amount paid by the employer could qualify as an eligible capital expenditure for the employer, this does not detract from the source deduction obligation which normally applies where the amount received by the employee constitutes remuneration by virtue of paragraph 153(1)(a).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 14 - Subsection 14(5) - Eligible Capital Expenditure payment to departing employee for customer list was on capital account 47

20 December 2002 Internal T.I. 2002-0147967 - TAX IMPLICATIONS CONTRACT TERMINATION

Upon the termination by a REIT of a management advisory agreement, an individual who previously worked for the advisor became the CEO of the REIT and a portion of the amount paid by the REIT on the termination of the agreement was allocated to the individual as consideration for a non-compete covenant in his employment contract rather than as termination damages to the management advisor. The Directorate indicated that, given the non-compete covenant was an essential component of the employment agreement of the individual, the amount allocated to him for that clause was income under s. 6(3)(e).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 54 - Proceeds of Disposition 25
Tax Topics - Income Tax Act - Section 9 - Compensation Payments termination of advisory agreemment with external MFT manager gave rise to capital receipt 267

9 November 1999 External T.I. 5-991265 -

The Agency indicated that an amount paid to a dismissed employee to secure a confidentiality agreement would be described by s. 6(3)(e) as consideration for a covenant with reference to what an officer or employee would not do after the termination of the employment.

17 October 1997 Ruling 97110

No amounts will be included in a executive's income under s. 5(1) as a result of a non-funded supplementary retirement arrangement under which, if he retired after 12 years of active service, he would be entitled to annual pension benefits equal to 30% of his average annual compensation during the 36 month period immediately preceding retirement, notwithstanding that benefits would be forfeited for any involvement by him in a competitive business within 18 months of terminating employment with the company or retiring.

8 February 1991 TI

Respecting the situation where a shareholder with a controlling interest in a corporation sold those shares and also received amounts for entering into a non-competition agreement, the Department stated:

"When the facts and circumstances indicate the payment relates to salary or wages or is in replacement thereof the amount will be treated as employment income ... . We agree with your view that, as indicated in IT-196R2 paragraph 2, unless the non-competition payment is considered to be in respect of salary and wages it would not be subject to subject to subsection 6(3) of the Act."

Subsection 6(3.1) - Amount receivable for covenant

Administrative Policy

S2-F3-C1 - Payments from Employer to Employee

1.9 Where an amount in respect of a covenant (described in [s. 6(3)] is receivable by an employee at the end of the year, subsection 6(3.1) deems the amount to be received at the end of that year, if:

  • the amount receivable was not included in the employee's income as part of a salary deferral arrangement as defined in subsection 248(1); and
  • the employee agreed to the covenant more than 36 months before the end of that year.

The amount is taxed as employment income at the end of that year.

1.10 If an amount in respect of a covenant is included in the employee's income as described in ¶1.9 and the amount becomes a bad debt in a later year, the employee may claim a deduction from income under paragraph 60(f) in that later year. An amount generally becomes a bad debt if it remains unpaid after the employee has exhausted all means to collect it or where the employer has become insolvent and has no means of paying it.

Subsection 6(4) - Group term life insurance

Administrative Policy

S2-F1-C1 - Health and Welfare Trusts

employee contributions

1.39 Employee contributions to a group term life insurance policy reduce the annual benefit that is included in income under subsection 6(4). ...

29 April 2013 External T.I. 2013-0476131E5 F - Régime d'assurance-collective

general description of the s.6(4) exception to s. 6(1)(a)(i)

In the context of a general discussion of the taxation of amounts related to a group insurance plan, CRA stated:

[[D]espite the exception in subparagraph 6(1)(a)(i), subsection 6(4) could apply to confer a taxable benefit on an employee respecting premiums paid by the employee’s employer in respect of a group term life insurance policy calculated in accordance with the provisions of sections 2700 to 2704 of the Income Tax Regulations (the "Regulations").

Consequently, we are of the view that, to the extent that premiums paid by an employer (out of its own funds) relate to one or more plans listed in subparagraph 6(1)(a)(i), no taxable benefit shall be included in the calculation of an employee's employment income, subject to subsection 6(4) in respect of a group term life insurance policy and paragraph 6(1)(e.1) in respect of contributions that an employer pays, in certain circumstances, under a group illness or accident insurance plan.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(e.1) overview of interrelationship between ss. 6(1)(a)(i), 6(1)(e.1) and 6(4) 292

21 July 2011 External T.I. 2010-0359171E5 F - Montants forfaitaires - retraités

amount in lieu of cancelled term life insurance proceeds paid to retired employee included under s. 6(4) or 6((1)(a)

Following the termination of a group term life insurance policy for the benefit of retired employees, their former employer (Taxpayerco) may decide to pay, to the retired employee, an equivalent amount ("lump sum") to the death benefit initially provided for in the abandoned group life insurance policy. CRA stated:

[A]ny amount paid to a retiree by Taxpayerco should be included in computing the retiree’s income under either section 5 or section 6 … [as] the payment … arises necessarily from the retiree’s employment with Taxpayerco.

(The CRA summary also referenced s. 6(4))

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Death Benefit payment in lieu of cancelled term life insurance policy made to employee’s estate is death benefit – but s. 6(4) or 6((1)(a) income if paid before retired employee’s death 156

December 1992 B.C. Tax Executives Institute Round Table, Q.9 (October 1993 Access Letter, p. 480)

Re consequences of changing a policy year from November 30 to January 31.

December 1992 B.C. Tax Executive Institute Round Table, Q.8 (October 1993 Access Letter, p. 479)

Separate calculations of the benefit under s. 6(4) for different groups of employees of the same employer will only be permitted where, under the terms of the policy, the premium, dividends and experience rating refunds in respect of each group are determined separately and independently.

14 April 1992 T.I. (Tax Window, No. 18, p. 16, ¶1858)

Where a group term life insurance policy that provides benefits over $25,000 requires an additional premium to be paid by the employer to ensure continued coverage under the group policy of employees who are disabled (and who do not pay premiums during disability), the premium will be considered to be "payable in respect of the policy year ending in the year" and, therefore, will be included in the calculation of taxable benefits to the employees under s. 6(4).

Subsection 6(6) - Employment at special work site or remote location


Truemner v. The Queen, 89 DTC 5149 (FCTD)

The taxpayer received a hardship allowance of $35 per day for working as a derrick hand at various locations in Alberta which admittedly were within 25 miles of established communities having a population of at least 1,000. An argument that the taxpayer could not reasonably be expected to maintain an apartment in the various communities was rejected, because those communities had vacancies, and the taxpayer made no attempt to find apartments in those communities.

The Queen v. Demers, 81 DTC 5256, [1981] CTC 282 (FCTD)

The monthly amounts paid to the taxpayer while employed by the Organization of American States included the monthly pro-rated portion of the sum of$4,280, which was intended to help compensate him for the high cost of living in Haiti during his 12-month posting there. This amount did not qualify for exclusion from his income under s. 6(6) given that it was not an "allowance" and given the absence of evidence that it was in respect of the items referred to in s. 6(6).

The Queen v. Forestell, 79 DTC 5289, [1979] CTC 370 (FCTD)

An extra $100 per week received by the taxpayer to compensate him for his additional living expenses while inspecting construction sites in Toronto 129 miles from his home, was held to be an allowance that was exempt by virtue of s. 6(6).

See Also

Spannier v. The Queen, 2013 TC 40

The taxpayer lived in a house in Kelowna from 2005 to 2011, except for a period in 2007 and 2008 where she stayed 20 out of every 28 days in Fort McMurray for work at a job site there (she spent most of the balance in Kelowna). The Minister assessed her for an employee benefit on her housing allowance for Fort McMurray, on the basis that she had not satisfied the conditions of s. 6(6) - in particular, that her Kelowna accommodation:

  1. was not a self-contained domestic establishment;
  2. was not her principal place of residence; and
  3. was not maintained by her.

Graham J. found that the conditions had been satisfied and granted the taxpayer's appeal.

The Minister's arguments relating to the first two points were based chiefly on the eight days spent at the taxpayer's alleged principal residence to her 20 days spent near her job site. In rejecting these arguments, Graham J. stated (at para. 24):

The purpose of subsection 6(6) is to ensure that taxpayers who are forced to incur expenses because of temporary work away from their homes are not taxed on a reasonable allowance provided by their employer to cover such expenses. Taxation on such an allowance would leave the taxpayer worse off for having traveled for work as they would have to pay for their temporary accommodations with after tax dollars.

He found that the purpose of s. 6(6) would be frustrated if the taxpayer's appeal were denied.

Regarding the third point, Graham J. stated (at para. 43):

I find that in the context of subsection 6(6), "maintain" means "preserve for use" or "keep available". ... The intention of the subsection is that the relief is only available to taxpayers who keep a residence available for their use while they are away on work. A taxpayer who does not keep such a residence available has, in essence, moved to the remote work site.

Under that interpretation, it was clear that the taxpayer had maintained her Kelowna accommodations for the purpose of s. 6(6), notwithstanding that the house belonged to a family friend and she stayed there free of charge.

Words and Phrases

Bergeron v. The Queen, 2011 DTC 1098 [at 534], 2010 TCC 56

The taxpayer was paid over $60,000, equal to half his salary, as a living allowance to cover his increased costs of living while in France. Lamarre J. found that, because the taxpayer could not establish that the allowance was not in excess of a reasonable amount, the allowance could not be excluded from income under s. 6(6).

Dupuis v. The Queen, 2009 DTC 1386, 2009 TCC 220 (Informal Procedure)

The taxpayer, who was an education specialist, was retained as a consultant by a Cree community under an employment contract with an initial term of two years (but with the contract being renewed several times). Under the contract, he was provided with, and resided in, a residence on the reserve with his family, although he continued to maintain a separate residence off the reserve as well.

In finding that the taxpayer held a temporary possession at the reserve, and that he was in a location remote from any established community, Tardif, J. noted that the taxpayer had no rights to the premises at which he lodged at the reserve since the location was under the absolute jurisdiction of the Band Council and that the Cree community lacked the quality of an established community.

Words and Phrases

Pozumiak v. The Queen, 2006 DTC 2165, 205 TCc 811

The taxpayer, who was transferred by the Vancouver Port Authority to the Chicago area for over two years to solicit business, was viewed by the Authority and him as there on a temporary assignment. The renting of an apartment there at the Authority's expense did not give rise to a taxable benefit.

Guilbert v. MNR, 91 DTC 740 (TCC)

The taxpayer accepted a position as editor in chief of Le Soleil in Quebec City in the expectation that it would be a temporary position (although, in the event, he stayed at the position for approximately three years) and was given free accommodation in an apartment. Dussault J. found that the newspaper's premises were not "a special work site" within the ordinary meaning of that phrase.

Administrative Policy

28 August 2013 Internal T.I. 2013-0496861I7 F - Allocation de résidence pour les juges

exemption was potentially available for a housing allowance received by a Chief Justice or Associate Chief Justice under a temporary appointment

A judge appointed as a Chief Justice or Associate Chief Justice for a particular judicial district received a fixed monthly allowance in light of a provincial legislative requirement to reside in that district.

The Directorate indicated that such allowance would be required to be included in income under s. 6(1)(b) unless it was excluded under s. 6(6). Although the other requirements of s. 6(6) might be satisfied, there was insufficient information to determine whether the appointment as Chief Justice or Associate Chief Justice was temporary in nature.

23 December 2013 External T.I. 2013-0505481E5 F - Application des paragraphes 6(6) et 110.7(1)

Treasury Board rates considered to be reasonable

A taxpayer ("Mr. A") worked at a special work site as defined in s. 6(6)(a)(i)work site located in an intermediate zone and was paid him an allowance of $70 per day for board and lodging. Given that the travel allowance rates established by the Treasury Board of Canada Secretariat ("TBCS") are $89.95 for the 30 first days and $67.40 for the subsequent days, will $70 be considered reasonable? CRA responded:

As a general rule, as indicated in ... 2007-0235131E5, the CRA considers that the amounts set by the TBCS are reasonable. … To the extent that the amounts received by Mr. A are used to cover the additional costs that he incurs and that these amounts do not allow him to be enriched, we would be of the view that they would be considered reasonable for the purposes of paragraph 6(6) and would be excluded from the calculation of his income.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 110.7 - Subsection 110.7(1) interaction between ss. 6(6) and 110.7(1)(b) 45

12 February 2015 External T.I. 2014-0550771E5 F - Allocation à des bénévoles - chantier particulier

mission work under 2 years in LDCs

A registered charity sends volunteers on missions to developing countries and pays them an allowance of $X per day based on the National Joint Council Travel Directive. After finding that, in any event, "remuneration that is quite unrepresentative of the services rendered would not be taxable," CRA stated respecting s. 6(6)(a) (TaxInterpretations translation):

[W]ork generally will be of a temporary nature if one can reasonably anticipate that its expected duration will not exceed two years. … Furthermore, the CRA generally considers that the rates…established by the Council…to be fair and reasonable.

See summary under s. 5(1).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(1) - Total Charitable Gifts mission work volunteers foregoing allowances 96
Tax Topics - Income Tax Act - Section 3 - Business Source/Reasonable Expectation of Profit modest compensation to volunteers qua independent contractors not income 98
Tax Topics - Income Tax Act - Section 5 - Subsection 5(1) quite unrepresentative remuneration: exempt 98

15 December 2014 Internal T.I. 2014-0544121I7 F - Chantier particulier

work engagement ceased to be temporary based on a change in circumstances

Regarding a situation where the taxpayer was hired temporarily to help address a temporary work backlog at a remote work site but then was retained once it became clear that another worker had definitively left the work site, the Directorate stated that the determination as to whether a work engagement is temporary generally must be made at its commencement based on the following factors:

  • the nature of the duties to be performed by the employee (certain types of work are, by their nature, short term engagements, such as repair work or trades which are involved only during a certain phase of a project);
  • the overall time estimated for a project, or a particular phase of a project, on which the employee is engaged to perform duties; and
  • the agreed period of time for which the employee was engaged according to the employment contract or other terms of the engagement.

Consideration should also be given, inter alia, to the possibility that the employment contract may be renewed and evidence of an intention to work there temporarily or otherwise.

As indicated in the Bulletin, should these factors change after employment commences, it may be necessary to redetermine whether the duties undertaken by the employee are considered to be of a temporary nature for the purposes of the special work site exclusion.

In relation, to the particular situation, the Directorate indicated that the work engagement ceased to be temporary at a redacted juncture.

Words and Phrases
temporary nature

30 December 2013 External T.I. 2013-0502641E5 - Transportation Allowance

reasonable travel allowance

"[A]n allowance that approximates the transportation expenses to be incurred by the employee would generally be considered reasonable for purposes of subparagraph 6(6)(b)(i)… ."

17 July 2012 Internal T.I. 2011-0421921I7 - Special work site and remote work location

2 year guideline

After referring to the statements in para. 6 of IT-91R4 that CRA will generally accept that an employee's duties are of a temporary nature at a particular work site if it can reasonably be expected that the employee is not continuously employed at that location beyond a two year period, CRA then stated:

...provided a particular employee in the situations described otherwise meets the conditions noted above, the fact that the employee is required to carry on his or her duties at one of the Employer's work sites in excess of the two year guideline mentioned in IT-91R4 would not automatically preclude the application of subsection 6(6)....

21 August 1996 Memorandum 961857 [coast guard vessel away for under 36 hours]

coast guard vessel away for under 36 hours

An individual employed as a watch-keeping officer on a Canadian coast guard vessel would not qualify for the special work site exclusion under s. 6(6)(a)(i) because his duties were not of a temporary nature. In order to qualify for the remote work location exclusion under s. 6(6)(a)(ii) the vessel would have to be at sea for a period of at least 36 hours.

30 June 1995 Memorandum 951108 (C.T.O. "Special Work Site Travel and Accommodation Allowance")

Where an employer has moved the workplace to another location and some employees who are within two years of retirement are provided with interim accommodation and travel allowances for a short time at the new work location rather than being required to relocate, s. 6(6) will apply provided the employees can satisfy the "temporary" requirement and there is factual certainty on this point at the outset.

17 February 1994 T.I. 932533 (C.T.O. "Special Work Sites")

Discussion of whether s. 6(6) is available where an individual who currently owns a residence in a European country and will continue to own that residence in anticipation of her return to that country, moves to Canada for a period of employment of two or three years by a Canadian affiliate of her previous European employer and will receive rent-free accommodation for her and her family during that period.

17 November 1993 Memorandum 932243 (C.T.O. "Special Work Site")

Free board and lodging received by student counsellors living fulltime at summer camps would not be exempt because they would not be paying expenses of a house or apartment and therefore would not be "maintaining" such a residence.

23 March 1992 T.I. (Tax Window, No. 18, p. 16, ¶1826)

A city in eastern Europe may qualify as a special worksite.

2 April 1990 Memorandum (September 1990 Access Letter, ¶1406)

"Established community" means a concentration of dwellings, or an organized area in which families live, and can encompass a community established by the employer. An amount that is non-taxable by virtue of s. 6(6)(a)(ii) will not reduce the amount of the deduction allowed by s. 110.7(1).

88 C.R. - F.Q.1

Any amount paid by the employee to the employer in respect of a benefit received would correspondingly reduce the amount of the benefit provided.


Novek, "Employment Benefits May be Tax-Free If Provided in Connection with Special Worksite or Remote Location", Taxation of Executive Compensation and Retirement, October 1991, p. 505.

Paragraph 6(6)(a)

Administrative Policy

19 January 2015 External T.I. 2014-0549061E5 F - logement des employés

permanent duties in a precarious field are not temporary duties/"remote" means over 80 km.

The corporate Employer offered temporary housing in the municipality where it carried on business to employees who had homes elsewhere. Employees performed shifts of at this location while staying at the temporary accommodation, and followed by; days off and were transported both morning and evening between the temporary lodging and their homes on the shift/days-off transitions for security reasons.

In finding that the value of the temporary lodging provided by the Employer should be included in computing the employees’ income under s. 6(1)(a), CRA stated:

[F]or subparagraph 6(6)(a)(i) to apply … the duties performed by the employee at the special work site [must be] of a temporary nature…. [Y]our question… concern[s]… duties that are permanent in a precarious field. The fact that the duration of employment is uncertain as a result of market conditions does not, on its own, result in temporary employment. …

[S.. 6(6)(a)(ii) is unavailable as] generally, a location is considered remote if the nearest established community of 1,000 or more is at least 80 kilometers (50 miles) by the most direct route normally taken in the circumstances.

27 September 2013 External T.I. 2012-0472981E5 F - Chantier part. - nature temporaire

application of 2-year posting test to determining whether "duties … of a temporary nature"

In the course of a general discussion of the meaning of "duties … of a temporary nature," CRA stated:

[W]here an employer offers its employees a contract of employment of less than two years but the possibility of renewal of the employment contract is known from the outset and/or if it often happens that the employees of this employer renew their employment contracts, it is unlikely that the duties of the employees will be of a temporary nature. …

When the duration of a posting at a particular place of employment is not clearly indicated at the outset by the employee and the employer and that period actually lasts more than two years, it is generally considered that the work has never been of a temporary nature. …

Where the employee and the employer do not clearly indicate the length of a posting at a particular work location, the intention of the parties to the effect that the assignment is temporary should be clearly demonstrated by other means to determine whether subsection 6(6) applies to the situation.

Words and Phrases
temporary nature

11 April 2011 External T.I. 2010-0382181E5 F - Emploi chantier particulier - propriétaire

employee can still qualify if lives in a secondary home near the work site

The correspondent owns a home ("Property A") that is more than 300 kilometers from the work site that remained at the individual’s disposal throughout the reference period and has not been rented to another person. The individual also owns a property ("Property B") in the city where the site is located or at a distance that allows for commuting daily between that residence and the site. Is the allowance received while working at the work site excluded under s. 6(6)? CRA responded:

[A]lthough we find it unusual for a worker to solve a temporary housing problem by buying rather than renting, we have assumed that the work you performed at the special work site was work of a temporary nature.

The question of whether you have a self-contained domestic establishment elsewhere that is a principal place of residence … can be answered by examining the following factors, which are not exhaustive:

  • What was your family's place of residence while you were working on the special work site?
  • At what time did you acquire the self-contained domestic establishment near the special work site?
  • Where would you have stayed if you were not employed at the special work site?
  • What will happen to the self-contained domestic establishment near the special work site when your employment at the special work site ends?

… Thus, the allowance you receive for board and lodging may be excluded from computing your income only if your work at the special work site is of a temporary nature, if your Property A is a self-contained domestic establishment considered as your principal place of residence and if all other conditions for the application of subparagraph 6(6)(a)(i) are satisfied.

Subparagraph 6(6)(a)(i)

Administrative Policy

29 January 2019 External T.I. 2018-0780481E5 F - Tenir un établissement domestique autonome

can qualify as self-contained domestic establishment if no ownership but expense responsibility

Respecting the interpretation of "maintained at another location a self-contained domestic establishment as the taxpayer’s principal place of residence” in subparagraph 6(6)(a)(i), CRA stated:

For the purposes of subparagraph 6(6)(a)(i) and paragraph 118(1)(b), it is our general position that an individual maintains a self-contained domestic establishment if the individual owns or rents a self-contained domestic establishment which is the individual’s principal place of residence and for whose maintenance the individual is responsible, alone or with other persons.

However … if an individual is not the owner or tenant of a self-contained domestic establishment (or the co-owner or co-tenant) but pays the expenses of the self-contained domestic establishment on a regular basis because of the individual’s responsibility for the establishment, we are generally of the view that the individual maintains a self-contained domestic establishment.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 118 - Subsection 118(1) - Paragraph 118(1)(b) “self-contained domestic establishment” entails expense responsibility 110

7 May 2013 External T.I. 2013-0481321E5 F - Logement sécurisé - travail de nature temporaire

payment of rents by a foreign employer at a secure compound in another country could qualify except for after when employment ceased

The employee secured a position with a foreign company (the "Employer") in the capital of a foreign country ("New Workplace") and, at the employee’s request, thereafter began to reside in an apartment located in a secure compound, with the Employer paying the rental expenses directly, and with the employee continuing to maintain a Canadian residence. The employee was terminated as a result of the Employer ceasing operations there, but continued on in the prepaid apartment for a while longer. CRA stated:

[T]he purpose of subparagraph 6(6)(a)(i) is to recognize that where an employee is required to work temporarily in a workplace located at a significant distance from where the employee usually resides, it is unreasonable to expect the employee to dispose of the employee’s current residence and move to the new location for a short period of time. …

In general, the work is considered temporary if it can reasonably be expected that it does not constitute a continuous employment of more than two years. However, this two-year limit is not automatically applied if the evidence demonstrates that the work done by an employee is of a temporary nature. …

[A] taxpayer who accepts a new full-time, permanent job abroad, could not claim, at the time the job ended, that the taxpayer’s work was temporary in nature. …

[Y]ou could only exclude the amount of expenses related to your housing for the period during which you performed your work at the New Workplace if the following requirements were met:

  • while you were working at the New Workplace, you maintained elsewhere (in Canada in this case) a self-contained domestic establishment that was your principal place of residence; and
  • the employment you had in the New Workplace was temporary in nature.

…However, you cannot claim the deduction in subparagraph 6(6)(a)(i) for any period during which you were not employed by the Employer.

Paragraph 6(6)(b)

See Also

McEachern v. The Queen, 2018 TCC 232 (Informal Procedure)

the first leg of travel to a remote work location did not qualify for exclusion under s. 6(6)(b)(ii)/TD4 generally required under s. 6(6)(b)(i)

The taxpayer, who was employed by Diavik Diamond Mines Inc. (“DDMI”) at a mine site in the far north, travelled from his residence in New Brunswick to Edmonton, Alberta which was a pick-up point for DDMI employees. From there, DDMI paid for an airline charter to transport employees to the remote mine site. The taxpayer alternated two week work periods at the mine site with two week periods at his residence in New Brunswick. DDMI paid the taxpayer an allowance of 4.5% of his rounded pay level to help pay for the travel costs from his residence to Edmonton, which were over twice the amount of the allowance. DDMI refused to provide a certification of exemption on Form TD4 on the grounds that (1) the allowance was not reasonable since it was calculated as a percentage of base salary rather than on an estimate of travel expenses; and (2) Form TD4 was to be used only for special work site claims (s. 6(6)(a) and(b)(i)) and not remote work location claims (s. 6(6)(a) and (b)(ii),) which was what the taxpayer qualified for. The Minister reassessed on the basis that the allowance should be included in the taxpayer’s income.

Masse DJ found that the s. 6(6)(b)(i) exclusion was not available as “Edmonton was not the special work site, it was only a pick-up point and not a work site at all” (para. 16) and similarly, the s. 6(6)(b)(ii) exclusion was not available as the “any other location” in Canada referred to therein was the pick-up point of Edmonton rather than the taxpayer’s residence (para. 17).

Respecting whether the exclusion was available where the employer had failed to provide a TD4 and, after referencing the jurisprudence on s. 8(10), he concluded (at para. 23) that it was necessary for the taxpayer to demonstrate that DDMI had been acting unreasonably (or in bad faith) in not providing the certification, and stated (at para. 23) that this was not the case as:

The Allowance of 4.5% of salary was arbitrary and bore no resemblance at all to the actual costs involved in travelling between the Appellant’s principal residence and Edmonton, AB.

He concluded (at para. 25)

The travel between New Brunswick and Edmonton, AB were essentially personal in nature since he chose to maintain his principal place of residence in another province. It has long been established that expenses related to travel from one’s residence to one’s work site are personal expenses. If the employer covers these expenses or pays for part of them, then they are a taxable benefit.

Administrative Policy

29 February 2012 External T.I. 2011-0427831E5 F - Chantier particulier

transportation allowance not excluded under s. 6(6)(b) if employee does not receive board and lodging

The Employer hired new employees who were assigned to a special work site within the meaning of s. 6(6)(a)(i) or at a location described in s. 6(6)(a)(ii), and were required to provide their own accommodation and meals but, in some case, were entitled to receive a transportation allowance from a third party (not the Employer) respecting their return on weekends to their principal place of residence. If these transportation allowances are taxable under s. 6(l)(b), are they excluded under s. 6(6)(b)?

After noting the general taxability of allowances, CR went on to state,

Paragraph 6(6)(b) does not require that it be the employer who pays to the taxpayer the amount representing the value of the expenses incurred by the taxpayer for the transportation but requires that the amount of the board and lodging referred to in 6(6)(a) be paid by the employee’s employer. ...

Under the facts submitted ... the transportation allowances do not come within paragraph 6(6)(b), particularly because the employees do not receive an amount from their employer referred to in paragraph 6(6)(a).

Subparagraph 6(6)(b)(i)

Administrative Policy

4 December 2018 External T.I. 2016-0670851E5 - Regular Places of Employment and Personal Travel

travel between temporary place of residence and special work site not excluded

In the course of a general discussion as to when a particular work location is considered a regular place of employment (RPE) for an employee, CRA stated:

[T]he value of a reasonable employer-provided allowance or reimbursement for travel between an employee’s principal place of residence and a special work site is excluded from the employee’s income, regardless of whether the special work site is a RPE for the employee.

However, if a special work site is a RPE for an employee, the value of a reasonable employer-provided allowance or reimbursement for travel between the employee’s temporary place of residence (e.g., a hotel, camp, rental home, etc.) and the special work site is included in the employee’s income under paragraph 6(1)(a) or (b) of the Act.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(b) scope of “regular place of employment" 148

7 October 2011 Roundtable, 2011-0411961C6 F - Dépenses de déplacement

s. 6(6)(b)(i) extended to a temporary foreign principal place of residence

An employee at a special work site located abroad must live in a temporary place of residence. Does CRA consider that the reimbursement of travel expenses (e.g., for car rental) incurred between the temporary residence and the special work site is a taxable benefit under s. 6(1)(a)?

CRA referenced the s. 6(6)(b) exclusion to s. 6(1)(a), and stated:

As indicated in … 2004-0059521E5 and 2008-0291081E5, that exclusion does not apply to transportation assistance that the employee received for travel between the special work site and a temporary residence of the employee that is the employee’s principal place of residence.

Subsection 6(7)

Administrative Policy

12 January 2017 Internal T.I. 2016-0636911I7 - Standby Charge - PST and the cost of an automobile

car standby charge is reduced for the sales tax reduction occurring where a trade-in allowance is provided on the car purchase

Where a trade-in forms part of the consideration paid for a purchased automobile, the amount of GST/HST and provincial sales tax (“PST”) payable on the purchase may be reduced to reflect the trade-in. Is the cost of the automobile for purposes of the standby charge formula in s. 6(2) also so reduced?

After noting that “Redclay [indicated that]was payable’ requires any GST/HST or PST actually paid pursuant to a vehicle purchase or lease contract to be included in the definition of cost for the purposes of subsection 6(2),” CRA indicated that under ETA s. 153(4)(c) “the GST/HST paid is not reduced because of an exemption [as referred to in s. 6(7)] but is reduced because of a calculation of the GST/HST base,” and the same analysis appeared to apply in the PST provinces. Accordingly, only the actual GST/HST or PST paid would be included in the cost for s. 6(2) purposes.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 6 - Subsection 6(2) cost for standby charge purposes reduced by sales tax reduction attributable to trade-in 49

Subsection 6(11) - Salary deferral arrangement

Administrative Policy

21 November 2016 Internal T.I. 2016-0641961I7 F - DSU Plan

recognition in income of full value of deferred units issued under offside plan

CRA found that a purported deferred share unit plan did not come within the Reg. 6801(d) safe harbour, and was a salary deferral arrangement, since the terms of the plan provided for the potential redemption of units in the event of a change of control of the corporate employer. Accordingly, the participants were required to recognize income on a current basis under ss. 6(11) and (12) because the plan also was offside due to the change-of-control triggering event.

For example, if an advance election has been made by a participant in the 2014 taxation year to have the plan apply to a bonus earned and payable in 2015 and deferred units were thereby credited to his or her account in 2015, the participant would then include in 2015 income the value of units received in respect of the deferred bonus and any dividend equivalents to which the participant was entitled at the end of 2015. The Directorate also stated:

[I]f the taxation year in which an amount under 6(11) and 6(12) is to be included is statute-barred, that amount will be included in the first year subsequent to the barred year.

Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Regulation 6801 - Paragraph 6801(d) - Subparagraph 6801(1)(d)(i) potential change-of-control redemption trigger (and Code s. 409A triggers) were offside 165

29 April 2015 External T.I. 2015-0565181E5 - Amendment to DSU plan

termination of Plan contrary to DSU rules triggered retroactive application of SDA rules

After finding that an amendment to a deferred share unit plan giving participants the option to be paid the value of their awards in instalments over a maximum of six years after retirement or termination of employment would cause the plan to cease to qualify under Reg. 6801(d), CRA noted:

If it is determined based on the facts that a DSU plan was never intended to provide for payments within the time parameters of paragraph 6801(d)… the SDA rules would apply retroactively. For example, … where a DSU plan was terminated and all outstanding awards were redeemed in cash…[a]s the early redemption did not involve extraordinary circumstances…we took the position that the SDA rules applied retroactively with respect to any outstanding awards.

...The effect of these rules [in ss. 6(1)(a)(v), 6(11) and 248(1) - "deferred amount"] is to bring into income the current value of any rights that exist under an SDA at the end of each year that were not previously included in income. If an amount was includable in income in a year that is now statute-barred, … [this] result[s] in the amount being brought forward and included in income in the earliest non-statute-barred year.

See also summary under Reg. 6801(d).

Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Regulation 6801 - Paragraph 6801(d) termination of Plan contrary to DSU rules triggered retroactive application of SDA rules 190


David Nathanson, "Included Versus Reported", Canadian Tax Highlights, Vol. 24, No. 9, September 2016, p. 5

Quigley treats “included” as “reported” or “assessed” (p. 5)

[T]he [Quigley] decision assumes that "included" means "reported" or "assessed as income," but paragraph 20(l)(j) allows a deduction for "such part of any loan . . . [that was] repaid by the taxpayer in the year as was by virtue of subsection 15(2) included in computing the taxpayer's income for a preceding taxation year." The wording seems to indicate that the operative event is the inclusion in income by a provision of the statute and not the inclusion in income by the minister's; assessment or by the taxpayer's reporting.

CRA position that SDA benefit can be included in 1st non-statute-barred year (p. 5)

[A] contribution to an RCA is not included in the individual taxpayer's income; a contribution to an SDA is income from employment in the year of receipt, not a subsequent year. But the CRA takes the position that because the contribution was not reported by the individual in the year of receipt, 'it was not "included" in the computation of the individual's income for that year "to that extent" As a consequence, the CRA says that the amount can be included in income by reassessment of the individual's first year that is not statute-barred. This conclusion is not true if an amount is included in income only because it is required by the Act and not because the taxpayer reported it as income.

…The Act provides no such statutory election to the minister.

Parliament did not make year of inclusion contingent (p. 5)

The orthodox view is that the word "included" means reported or assessed. However, in many if not all circumstances, the word specifically means amounts that are included by the statue and not by any act of the taxpayer or of the minister. If Parliament intended to make a tax result depend on the action of the taxpayer or the minister, the statute should expressly provide for that contingency.

Words and Phrases

Jim Kahane, Uros Karadzic, Simon Létourneau-Laroche, "A Fresh Look at Retirement Compensation Arrangement: A Flexible Vehicle for Retirement Planning", Canadian Tax Journal (2013) 61:2, 479 – 502.

Consequences of SDA (p. 484)

If a plan is characterized as an SDA, adverse tax consequences result. The amounts contributed to the plan would be considered to be deferred income, taxable immediately to the employee in the taxation year in which the contributions are made by the employer. [fn 20: Subsection 6(11).] Although the employee would be immediately subject to income tax on the contributed amount, the cash would not be available since it would remain with the custodian of the plan.

Comparison with employee benefit plan (p. 484)

Finally, where a funded unregistered arrangement is neither an SDA nor an RCA, it will likely constitute an EBP where the arrangement involves a custodian. In the case of post-employment compensation, an EBP may be used to deliver incentive awards or provide benefits to former employees. The EBP rules allow the tax to be deferred until the employee receives the benefit payment. In this way, the EBP rules may be viewed as less harsh than the SDA rules, which require immediate income recognition even where the amount has not been received. However, the RCA offers more flexibility in providing benefits than either an EBP or an SDA.

Subsection 6(14)

Administrative Policy

14 May 2019 External T.I. 2017-0737571E5 - SAR plan with dividend equivalents

dividend equivalent clause is not severable from balance of SAR plan

The share appreciation rights (SAR) plan of an employer corporation provides for dividend equivalents on SAR units that are satisfied by way of cash payments made annually to employee participants. CRA indicated that if the current vesting period for a SAR unit granted under the plan was extended from three years to five years (so that the three year bonus plan safe harbour in para. (k) of the salary deferral arrangement definition no longer applied), then the plan would not be considered to come within CRA’s accommodation of SAR plans, so that the SDA rules could apply. CRA went on to state:

[S]ubsection 6(14) … will not apply to such a plan to provide partial relief from the SDA rules for the main component of the award. The dividend equivalent feature is not separate enough from the main component to be a plan or arrangement within a larger plan or arrangement, as required by that subsection.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Salary Deferral Arrangements SDA exception for SAR plans unavailable where dividend equivalents are paid in cash 307

Paragraph 6(14)(a)

Administrative Policy

11 January 2019 External T.I. 2018-0740741E5 - Taxation of supplemental retirement plans

additional benefit features of supplemental pension plan treated as SDAs separate from qualifying base component of plan

CRA noted its position that a supplemental pension plan to top up the pension benefits for executives whose remuneration is such as to make the registered pension plan (RPP) contribution limits too low will not give rise to a salary deferral arrangement (SDA) where this plan operates similarly to an RPP but for exceeding the monetary limits. However, CRA stated that there likely will be an SDA where the plan also provides that members can elect to reduce or forego future bonus entitlements and accrued vacation pay entitlements for additional allocations (of equal amounts) to the member’s account (to be paid out at the earliest of termination of employment, retirement or death) – stating that these additional features “appear to be primarily motivated by tax deferral considerations.” CRA similarly concluded that a Retirement Allowance Plan – under which notional contributions are allocated each month to an executive’s account of 7% of the executive’s monthly remuneration, plus a further one-time $125,000 notional contribution at the start of the plan, with the executive entitled, at the earlier of termination of employment or attaining 65, to the account balance as a lump sum, or in 10 annual instalments - also likely would constitute an SDA.

Before so concluding, CRA stated:

Subsection 6(14) provides that when an SDA is part of a larger combination plan providing other benefits, the SDA will be treated as a separate arrangement independent of the parts of the plan that are not an SDA. Accordingly, each of the three notional contribution components of the Supplemental Plan can be considered separately in determining whether the particular component is an SDA.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Salary Deferral Arrangements additional benefit features of a supplemental pension plan treated as SDAs 410

Subsection 6(13) - Application


Miller, "Tax Considerations for U.S. Citizens Moving to Canada", 1993 Corporate Management Tax Conference Report, c. 16.

Subsection 6(15) - Forgiveness of employee debt

Administrative Policy

12 October 2016 Internal T.I. 2016-0637781I7 - Employee loan or debt extinguished or settled

writing-off a statute-barred debt of an employee or remitting for financial hardship triggers benefit

An organization (apparently, a federal Crown corporation or agency) may “write off or remit” an employee debt based on employee financial hardship or bankruptcy, or as a result of collection of the debt becoming statute-barred. Will s. 6(15) apply?

Respecting where the debt is remitted under s. 23(2.1) of the Financial Administration Act for reasons of financial hardship, CRA stated:

Since the debt is settled or extinguished because of the organization’s decision and not the operation of another law… the benefit is connected to the employee’s employment…[and] would be included…under paragraph 6(1)(a).


[W]here… the employee debt is extinguished as a result of… bankruptcy proceedings, the benefit is not connected to the employee’s employment and the amount of the debt extinguished is not included in the employee’s income.

After having already stated that an employee debt is settled or extinguished where the “employer writes off or remits” it, CRA addressed the statute-barring situation:

[T]he debt is not settled or extinguished by operation of the [statute-barring]…. Where your organization writes off a debt because it is not legally enforceable… the benefit is connected to the employee’s employment. …[T]he amount of the debt written off would be included in the employee’s employment income under paragraph 6(1)(a).

Words and Phrases
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 80 - Subsection 80(2) - Paragraph 80(2)(a) writing-off debt was its settlement 34

10 February 1992 T.I. (Tax Window, No. 16, p. 12, ¶1742)

Where an employee receives a loan from his employer to acquire shares of his employer (a public corporation) on the basis that the shares will be held by a trustee until the loan is repaid, s. 6(15) will apply, if the employee leaves his employment and forfeits his shares, to the extent that the fair market value of the shares is less than the amount of the loan at the time he leaves. Where the stock is traded actively, the fair market value of the shares will be the average trading price on the day in which the payment is made.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Fair Market Value - Shares 24

4 November 1991 Memorandum (Tax Window, No. 13, p. 11, ¶1585)

Where an employee has declared bankruptcy after receiving a loan from his employer and later receives a discharge, the amount of the unpaid loan will be included in his income. S.6(15) also applies when a loan to the employee is settled after the bankruptcy of the employer.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 80.4 - Subsection 80.4(1) 29

Subsection 6(15.1) - Forgiven amount

See Also

Rémillard v. The Queen, 2011 DTC 1286 [at 1617], 2011 TCC 327

The taxpayer was the sole director and an employee of a company ("RCI"), who lent the taxpayer $5 million and then forgave the debt at the behest of a potential purchaser of RCI. McArthur J. found that the taxpayer realized a corresponding benefit under s. 6(15). The taxpayer unsuccessfully argued that s. 6(15) did not apply because the debt was not a commercial obligation and the s. 80(1) definition of "forgiven amount" excludes debts that are not commercial obligations.

This argument was untenable in light of s. 6(15.1). The reference in that provision to the debt being a commercial obligation was an assumption which it imposed, rather than the stipulation of a condition which was required to be satisfied.

Subsection 6(22) - Eligible housing loss

See Also

Thomas v. The Queen, 2005 DTC 1527, 2005 TCC 613

When the taxpayer's employment was terminated, he was reimbursed by his employer for the cost of his home notwithstanding that that cost exceeded the fair market value of the home at the time by $91,870. He then relocated to Ottawa.

Given that the taxpayer sold his home to his employer because his employment was terminated and not because he relocated to Ottawa, the loss for which he was reimbursed was not an eligible housing loss, and was deemed to be a benefit under s. 6(19).

Administrative Policy

S2-F3-C2 - Benefits and Allowances Received from Employment

eligible housing loss

2.39 An eligible housing loss is defined in subsection 6(22) as a housing loss in respect of an eligible relocation of an employee or an individual who does not deal at arm’s length with the employee. An employee can designate only one residence for purposes of the eligible housing loss. An eligible relocation in respect of an individual is a relocation that occurs to enable the individual to be employed at a new work location, where the new residence is located at least40 kilometres closer to the new work location than the old residence. When an employer compensates an employee for an eligible housing loss, the first $15,000 of the compensation is not included in the employee’s income. However, one-half of the compensation that exceeds $15,000 is deemed by subsection 6(20) to be a benefit received from employment and included in the employee’s income under paragraph 6(1)(a). For examples of how to calculate an eligible housing loss benefit, go to Examples - housing loss.

Subsection 6(23) - Employer-provided housing subsidies

Administrative Policy

25 May 2001 External T.I. 2001-007831 -

The payment or reimbursement by an employer to an employee of reasonable temporary living expenses incurred while waiting to occupy a new, permanent form of accommodation would not fall within the preview of s. 6(23).

The Queen v. Proulx, 2010 DTC 5028 [at 5609], 2010 FCA 261

In accordance with Lefebvre, the Court found that the taxpayer, being a pastoral agent of the Roman Catholic Church, was not a "regular minister of a religious denomination" and therefore ineligible for s. 8(1)(c) deductions.