2017-0682891E5 Taxable benefits
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Whether an employer’s fixed monthly payments provided to its employees under various scenarios should be included in the employee’s employment income.
Position: Question of fact.
Reasons: See response.
Section: 6(1)(a), 6(1)(b), 6(1)(b) )(vii) and (vii.1)
April 13, 2018
Re: Taxable benefits
We are writing in response to your email dated January 5, 2017, and subsequent telephone conversations (Underhill/XXXXXXXXXX), in which you asked about the tax consequences under the Income Tax Act (“Act”) of an employer’s fixed monthly payments (“payments”) provided to school bus drivers (“employees”). More specifically, you asked whether payments to cover the cost of the employee’s use of a personal cellular phone, bus washing, and electricity consumption should be included in the employee’s income.
Our understanding of the situation you described:
* Cellular phone: The payment is to cover all or part of the employees’ personal cellular phone voice and data used for employment purposes;
* Bus washing: The payment is to cover the cost of cleaning the employer’s school bus (which may include the cost of the cleaning supplies and the employees’ services) at either the employees’ residence or at a car wash;
* Electricity consumption: The payment is to cover the cost for plugging in the employer’s school bus at the employees’ residence to ensure that the bus will start in the morning; and
* The employees are not required to submit receipts to receive any of the employer’s payments.
This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of a particular transaction proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R7, Advance Income Tax Rulings and Technical Interpretations.
The tax treatment of an employer’s payment under the Act depends on whether the payment is a reimbursement or an allowance. Chapter 1 of Guide T4130, Employers’ Guide – Taxable Benefits and Allowances defines an allowance or advance as any periodic or lump-sum payment that an employee receives without having to account for its use. An allowance or advance is:
* usually an arbitrary amount that is predetermined without using the actual cost;
* usually for a specific purpose; and
* used as the employee chooses, since the employee does not provide receipts.
By contrast, a reimbursement is defined in Guide T4130, as a payment made to repay an amount an employee spent on a specific expense and for which detailed receipts are provided.
It is a question of fact as to whether an employer’s payment is considered to be a reimbursement or an allowance. Based on the above, the payments for the use of a personal cellular phone, bus washing, and electricity consumption would be considered an allowance because the employees are not required to submit receipts to receive the payments from the employer.
Paragraphs 6(1)(a) and (b) of the Act generally include in an employee’s income all benefits and allowances received or enjoyed in the year because of employment, unless specifically excluded by another provision of the Act. Where an employer reimburses an employee for a specific expense incurred in the performance of his or her employment duties, the reimbursement will generally not be considered a benefit under paragraph 6(1)(a) of the Act. Whereas, under paragraph 6(1)(b) of the Act all amounts received in the year as an allowance for personal or living expenses, or as an allowance for any other purpose is included in an employee’s income, unless it falls under the exceptions in subparagraphs 6(1)(b)(i) to (xi) of the Act.
In our view, none of the exceptions in subparagraphs 6(1)(b)(i) to (xi) of the Act apply to exclude the payments from an employee’s income. The allowances are required to be included in the employee’s income under paragraph 6(1)(b) of the Act.
We trust our comments will be of assistance to you.
Shiri Trop, CPA, CA, MTax
Business and Employment Income Section
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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