Employers often offer benefits of different kinds to their employee – some are taxable and some are not. On June 11, 2009, Canada Revenue Agency (“CRA”) revised its administrative policies with respect to the tax treatment of the following taxable employment benefits. The policy changes provide some welcome clarification and updates to the interpretation of what will be considered to be a taxable benefit.
Changes Effective for 2009 Tax Year
Overtime Meals and Allowances Provided to Employees
CRA’s current policy treats certain overtime meals or reasonable allowances for such meals as a non-taxable benefit if the employee worked 3 or more hours of overtime right before or after the employee’s scheduled hours of work, and provided that the overtime was infrequent and occasional in nature.
The policy has been revised to provide that CRA will consider no taxable benefit to have arisen if:
- the value of the meal or the allowance is reasonable – a value of up to $17 will generally be considered reasonable;
- the employee works 2 or more overtime hours right before or right after their scheduled hours of work; and
- the overtime is infrequent and occasional in nature.
Meals or allowances given less often than 3 times per week will generally comply with this standard, as will meals or allowances provided 3 times or more in a week on an occasional basis to meet workload demands (such as major repairs or periodic financial reporting). CRA will consider overtime meal allowances to be a taxable benefit if overtime occurs frequently or becomes the norm as such allowances will then be viewed as a form of additional remuneration.
Paid Travel Expenses within Same Municipality or Metropolitan Area as Employee’s Place of Work
CRA will accept that employer-provided travel (including meal) allowances paid for travel within a “municipality” or “metropolitan area” where the employee’s place of work is located, may be excluded from an employee’s income if the allowance is paid primarily for the benefit of the employer. An allowance will generally meet this standard if its principal objective is to ensure that the employee’s duties are undertaken in a more efficient manner during the course of a work shift and the allowance is not indicative of an alternate form of remuneration.
CRA will no longer require an employee to include as part of their taxable income, loyalty points (such as frequent flyer miles) accumulated by an employee on their own personal credit cards when travelling on employer-reimbursed business trips or while incurring other business-related expenses as long as:
- the points are not converted into cash;
- the plan or arrangement is not indicative of an alternate form of remuneration; or
- the plan or arrangement is not for tax avoidance purposes.
Where the employer controls the points (such as with a company credit card), the employer will still be required to report on the employee’s T4 the fair market value of any benefits received by the employee.
Employer-Provided Motor Vehicles
CRA will now permit an employee to claim the “operating benefit rate” set annually pursuant to section 7305.1 of the Regulations, rather than the higher rate set by section 7306 of the Regulations, as a reflection of the reasonable benefit received by an employee who has an employer-provided vehicle where all of the following conditions are met:
- The motor vehicle is not defined as an “automobile” under subsection 248(1) of the Income Tax Act;
- The employer has bona fide business reasons for requiring the employee to take the motor vehicle home at night (such as security concerns with respect to the employer’s tools and equipment being left at the place of work or the employee is on-call for emergencies and the vehicle has been provided to improve response to emergencies); and
- The vehicle is specifically designed or suited for the employer’s business or trade and is essential in a fundamental way to the performance of the employee’s duties. Mere transportation of the employee is not enough to meet this standard.
Effective for 2010 Tax Year
Non-Cash Gifts and Non-Cash Awards
Non-cash gifts and non-cash awards given to an “arm’s length employee” will not be taxable to the extent that the total aggregate value of all such gifts and awards to that employee is less than $500 annually. Any value in excess of $500 annually will be taxable. (“Arm’s length employee” means an employee who is not related to the shareholders or owners of the employer).
In addition, a separate non-cash long service/anniversary award may also qualify for non-taxable status if:
- the total value of the award is $500 or less, and
- the anniversary award is for 5 or more years of service or it has been at least 5 years since the last long-service award was made to the employee.
Surface Transit Passes Provided to Family Members of Transit Employees
While free or discounted surface transit passes provided to transit employees who are employed in the business of operating the transit vehicles will remain non-taxable, passes provided to family members of a transit employee will represent a taxable benefit to the employee.
The full text of Technical News No. 40 (including some examples to assist in interpreting the policy changes) is available at the Canada Revenue Agency website.