CRA guidelines on whether or not two office perks are taxable worker advantages

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Jamie Golombek: Workers might find yourself paying tax on varied non-cash employment advantages

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Workers are taxable on their salaries, bonuses and every other kind of direct compensation they might obtain, however they may additionally find yourself paying tax on varied non-cash employment advantages or perquisites.

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Beneath the Earnings Tax Act, staff should embrace of their earnings the worth of any advantages of any sort acquired by the worker “in respect of, in the middle of, or by advantage of his or her employment.” In figuring out whether or not an worker should embrace the worth of a profit acquired, the Canada Income Company appears to be like at three figuring out components: Does the profit give the worker an financial benefit? Is the profit measurable and quantifiable? And does it primarily profit the worker or the employer?

Two latest CRA technical interpretation letters, every launched previously month, mentioned whether or not sure employer-provided advantages could be thought-about taxable. The primary involved employer-provided COVID-19 testing, and the second was employer-provided id theft safety companies. Let’s check out what the CRA stated about each.

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COVID-19 testing

The taxpayer, presumably an employer, wrote to the CRA asking about employer-paid COVID-19 testing, particularly a polymerase chain response take a look at the place staff mail within the pattern to a laboratory for evaluation. The outcomes take a number of days to course of and are available again. The testing is totally funded by the employer, participation by staff is voluntary, and an unfavourable take a look at consequence (that’s, a optimistic COVID-19 take a look at consequence) would forestall the worker from getting into the employer’s premises. Notably, the worker would nonetheless have the ability to preserve their employment standing by way of another work association if a optimistic take a look at consequence have been to happen.

The CRA responded that it was the company’s “long-standing view” that an employer is taken into account to be the first beneficiary of medical testing in conditions the place such testing is important to fulfil a situation of employment. Within the state of affairs described within the letter, nonetheless, staff will not be required to take a COVID-19 take a look at and the take a look at outcomes (whether or not optimistic or destructive) haven’t any influence on an worker’s employment standing. In consequence, voluntary COVID-19 testing doesn’t create an employment situation.

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That stated, within the context of the pandemic, “appreciable effort is being made to regulate the unfold of the virus,” with governments encouraging employers to make testing accessible to staff. In consequence, the CRA concluded that the place the outcomes of employer-provided COVID-19 testing are primarily for the usage of an employer, it’s “each unlikely and unintended that an worker could be enriched or thought-about to have acquired an financial benefit,” and so the CRA doesn’t view employer-provided COVID-19 testing as a taxable profit to staff. (Phew.)

Identification theft defend premiums

The second technical interpretation letter was written by an employer asking whether or not id theft defend premiums it presumably would pay to a 3rd occasion on behalf of its staff could be thought-about a taxable profit to staff, and whether or not these premiums could be thought-about a tax-deductible enterprise expense for the employer.

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Identification theft safety companies usually present id or credit score monitoring companies to find out if a person’s private info has been compromised. Based on the small print of the plan, the issuer of the coverage supplies privateness and safety monitoring, id session companies and id restoration companies. Particularly, the service screens for matches of a person’s personally identifiable info: title, date of delivery, social insurance coverage quantity, driver’s licence quantity, as much as 5 passport numbers, and as much as 10 of every of the next: checking account numbers, worldwide checking account numbers, credit score/debit card numbers, medical identification numbers, e-mail addresses and cellphone numbers.

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The CRA, after reviewing the small print of the plan and companies on provide, and within the absence of further info suggesting a heightened threat of id theft for the corporate’s staff or some kind of hyperlink between the non-public info monitored and the employer’s enterprise, decided that the employer-paid plan would seem to supply an financial benefit primarily for the good thing about the workers. In consequence, the CRA concluded that employer-paid premiums would, certainly, be included within the worker’s earnings as a taxable employment profit.

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The CRA then turned to the query as as to if the premiums paid could be tax deductible to the employer as a enterprise expense. Typically, with a purpose to qualify as a tax-deductible enterprise expense, it should be incurred for the aim of incomes enterprise earnings, should be neither a capital expenditure nor a private expense, and should be affordable within the circumstances.

Primarily based on the small print of the id theft safety plan described above, the CRA felt that the companies relate to defending a person’s private and monetary info, and weren’t associated to both the worker’s employment or enterprise info. That stated, the CRA concluded that to the extent the employer-paid premiums are included within the staff’ earnings as a taxable profit, the premiums would even be tax deductible for enterprise functions offered they’re additionally thought-about affordable. This conclusion is in keeping with most employer-paid perquisites, that are usually tax deductible to the employer.

Jamie Golombek, CPA, CA, CFP, CLU, TEP, is the managing director, Tax & Property Planning with CIBC Non-public Wealth in Toronto. Jamie.Golombek@cibc.com

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