Employee Taxable Benefits: Recent Policy Changes

We are approaching the time of year to prepare T4 slips and summarize non-cash benefits for employees. Below are some recent policy changes announced by the Canada Revenue Agency (CRA) with respect to the determination of employee taxable benefits. Changes are applicable to the calculation of 2009 benefits, except where otherwise noted.

Overtime meals

Meal allowances and reimbursements paid for employees working overtime will no longer be considered taxable benefits where the following conditions are met:

1. the value of the meal or allowance is reasonable (generally, not greater than $17);
2. the employee works two or more hours (formerly three) of overtime either right before or right after his or her scheduled hours of work; and
3. the overtime is infrequent and occasional in nature.

The allowance will be considered taxable remuneration where the employee frequently works overtime or where working overtime becomes the norm. The CRA continues to define "infrequent" overtime as ordinarily less than three times per week, but will now accept overtime exceeding that rate on a temporary basis to meet occasional or seasonal workload demands.

Travel allowances

The CRA accepts that travel allowances for travel and meals within a "municipality or metropolitan area" can be excluded from the employee's income provided the allowances are paid primarily for the benefit of the employer (i.e. to allow the employee's duties to be carried out more efficiently) and are not indicative of an alternate form of pay. 

Loyalty programs

Where employees collect loyalty points, (i.e. travel points such as Aeroplan) by incurring reimbursable business expenses on personal credit cards, a taxable benefit arises since those points can be exchanged for goods or services. But it can be difficult to assess the value of that benefit. How much is that flight from Vancouver to Halifax, with overnight connections through Kamloops and Winnipeg, really worth? The CRA formerly required employees to calculate and report the value of those points, but in addition to woeful levels of compliance from taxpayers, the CRA endured some setbacks attempting to enforce assessments in the Tax Court. For example, in Giffen, the Court refused to allow the CRA to calculate benefits for travel points at the full retail value of airline tickets, opting instead for a more reasonable discounted value that recognized the restrictions that typically apply to such tickets.

As a result of these difficulties, the CRA no longer requires a benefit to be recognized in the following circumstances:

1. the employer does not control the points accumulated;
2. the points are not converted to cash;
3. the plan or arrangement is not indicative of an additional form of salary; and
4. the plan is not established for tax avoidance purposes.

However, if the employer controls the points accumulated, then the employer is still required to report the fair market value of any benefits received by the employee on his or her T4 slip.

Company vehicles required to be taken home at night

Travel in a corporate-owned vehicle between home and work is normally considered personal use and results in a taxable benefit to the employee, generally calculated at $0.52 per kilometre for the first 5,000 kilometres and $0.46 for each additional kilometre. However, this rate can be reduced to $0.24 per kilometre (the operating cost taxable benefit rate for 2009) where the following conditions are met:

1. The vehicle is not an "automobile" as defined in the Income Tax Act (the definition excludes emergency response vehicles, certain vans and pick-up trucks, etc).
2. The vehicle is provided on the condition that the employee may not use it for personal use outside of driving it to and from work.
3. The employer has bona fide business reasons for requiring the employee to take the vehicle home at night, such as security concerns for leaving the vehicle at a worksite, or to gain faster response time for an employee who is on-call for emergencies.
4. The vehicle is specifically designed or modified for the employer's business or trade and is essential to perform employment duties, beyond mere transport of the employee.

Note that the use of these vehicles is not considered personal, and therefore no benefit arises, if the employee proceeds directly to, or directly home from, a point of call (i.e. scene of emergency).

Non-cash gifts or awards

In the past, the CRA allowed employers to provide up to two non-cash gifts and awards totaling $500 or less without taxation to the employee. Under the revised policy, effective in 2010, gifts aggregating more than $500 will still be taxable, but the number of gifts making up this amount will no longer be restricted. In addition, the CRA now allows employers to provide a separate non-cash long service award (not exceeding $500) to be given to an employee without assessing a taxable benefit. Performance-related awards (i.e. sales targets) and cash or near cash awards, such as gift certificates, will continue to be taxable benefits to the employee.

Employer-funded scholarship programs

The CRA recently lost several court cases in which it attempted to tax employees whose children received employer-funded scholarships. In September, 2009, the CRA issued a technical interpretation advising that it has reconciled its assessing policy to these decisions. Where an arm's-length employer provides a post-secondary scholarship, bursary or free tuition to family members of an employee under a scholarship program, the amount will not constitute a taxable benefit to the employee. The employer is required to issue a T4A slip to the student, although generally such scholarships will be tax-exempt.

Benefits to shareholder employees

Where an employee is also a significant shareholder, benefits sometimes accrue to that individual by virtue of his or her role as a shareholder rather than as an employee. In such cases, some of the relief provided under tax laws and CRA policy for employee benefits might not apply. Worse, the cost of providing shareholder benefits is generally not deductible by the corporation. Therefore, additional care is needed when designing benefits for owner/managers and other significant shareholders.

Contact your Collins Barrow advisor for more information on employee taxable benefits.

Tony Ozeroff, CA, is a Senior Tax Manager in the Calgary office of Collins Barrow.