Canada: Tax Authority Tweaks Taxation of Employee Benefits

The Canada Revenue Agency (CRA) recently released Income Tax Technical News (ITTN) No. 40, which deals with administrative policy changes for taxable employment benefits, including over-time meals and allowances, employer-provided motor vehicles, and non-cash gifts and non-cash awards. (All dollar figures expressed are Canadian dollars.)

This article is republished, with permission, from “CRA Tweaks Taxation of Employee Benefits” in Canadian Tax Adviser (August 2009), a publication of the KPMG International member firm in Canada.

Non-Cash Gifts and Non-Cash Awards

The CRA's current gifts and awards policy allows for up to two non-cash gifts costing the
employer in total $500 or less and two non-cash awards costing the employer in total $500
or less to be non-taxable.

The CRA has made the following administrative changes, effective for 2010:

• Non-cash gifts and non-cash awards to an arm's-length employee, regardless of number, will not be taxable to the extent that the total aggregate value of all non-cash gifts and non-cash awards to that employee is less than $500 annually. The total value in excess of $500 annually will be taxable.
• A separate non-cash long service/anniversary award may also qualify for non-taxable status to the extent its total value is $500 or less.
• This policy will not apply to non-arm's-length employees or related persons of the nonarm's length employee.
• Items of an immaterial or nominal value, such as coffee, tea, T-shirts with employer logos, mugs, plaques, and trophies will not be considered a taxable benefit to employees.

The CRA's administrative policies as to the qualifying nature of gifts and awards remain unchanged.

Over-time Meals and Allowances

Currently, the CRA allows for a non-taxable status of certain over-time meals or reasonable allowances for over-time meals in certain situations. Specifically, the employee must have worked three or more hours of over-time right after his or her scheduled hours of work and the over-time was infrequent and occasional in nature (less than three times a week).

Effective for 2009, the CRA says it will consider no taxable benefit to arise:

• If the value of a meal or meal allowance is reasonable (up to $17).
• If the employee works two or more hours of over-time right before or right after his or her scheduled hours of work.
• If the over-time is infrequent and occasional in nature (less than three times a week). This condition may also be met where the meal or allowance is provided three or more times per week on an occasional basis to meet work-load demands such as major repairs or periodic financial reporting.

Where the over-time occurs frequently, the CRA considers the over-time meal allowances to be a taxable benefit because they take on the characteristics of additional remuneration.

Employer-Provided Motor Vehicles

Travel between home and work in a motor vehicle provided by an employer is generally considered personal use of the vehicle, which results in an employment benefit. Currently, the employment benefit is, generally, 52 cents per kilometre for the first 5,000 kilometres driven, and 46 cents for each additional kilometre. That rate will be lowered to the operating benefit rate (24 cents per kilometre for 2009) where:

• the motor vehicle is specifically designed or suited for the employer's business or trade, and is essential for the performance of the employee's duties;
• the motor vehicle is not defined as an automobile under the tax rules;
• the vehicle has not been used for any other personal use other than commuting between home and work;
• there are genuine business reasons for requiring the employee to take the motor vehicle home at night.

The CRA notes that the use of these vehicles is not considered personal if the employee proceeds directly from home to a point of call (e.g., the scene of an emergency) or returns home from that point of call.

Other Benefits

The CRA generally no longer requires employees to include the following employment
benefits in their income, effective for 2009:

• loyalty points (e.g., frequent flyer points) collected on an employee's personal credit cards offered by third parties when travelling on employer reimbursed business trips or incurring other business related expenses (subject to certain conditions);
• allowances paid for travel within the municipality or metropolitan area.

Source: KPMG