Why there’s rarely a free lunch for em­ploy­ees in Canada.

Cana­dian meal-time rules are harsher than in the U.S.

National Post (Latest Edition) - Financial Post Magazine - - COLUMNS&DEPARTMENTS - Jamie Golombek, CPA, CA, CFP, CLU, TEP is man­ag­ing di­rec­tor, Tax & Es­tate Plan­ning, at CIBC Wealth Ad­vi­sory Ser­vices in Toronto. Email: Jamie.Golombek@cibc.ca

Sil­i­con Val­ley’s high-tech work­ers may soon have to pay tax on the value of free meals and snacks, which are a com­mon ben­e­fit pro­vided by com­pa­nies such as Google Inc., Ya­hoo Inc. and Face­book Inc. Ac­cord­ing to the Sil­i­con Val­ley Busi­ness Jour­nal, Google serves 30,000 meals per day at its 30-plus cam­pus cafés in Moun­tain View, Calif. It also re­ported that the In­ter­nal Rev­enue Ser­vice in July 2015 re­leased its new, an­nual Pri­or­ity Guid­ance Plan, which lists the rules gov­ern­ing em­ployer-pro­vided meals as be­ing sub­ject to re­view dur­ing the com­ing year.

Cur­rently, un­der U.S. tax law, free meals pro­vided by an em­ployer are tax free if the meals are con­sid­ered to be for “em­ployee con­ve­nience” and are pro­vided on the em­ployer’s premises. The key ques­tion in the U.S. is whether the em­ployer-pro­vided meal is pri­mar­ily for the ben­e­fit of the em­ployer or em­ployee. Af­ter all, the con­ve­nience of hav­ing em­ploy­ees easily grab a meal from the com­pany cafe­te­ria means that they don’t have to leave the build­ing and, pre­sum­ably, will spend less time away from the desks and more time work­ing.

Canada Rev­enue Agency’s set of rules re­gard­ing free meals are not as gen­er­ous. Un­der Cana­dian tax rules, if an em­ployer pro­vides a sub­si­dized meal to an em­ployee in its cafe­te­ria, for ex­am­ple, the meal is not con­sid­ered a tax­able ben­e­fit if the em­ployee pays a “rea­son­able charge.” The CRA de­fines a rea­son­able charge as one that cov­ers the cost of food, its prepa­ra­tion and ser­vice. If, how­ever, the charge is not rea­son­able (or if the meal is free), then the value of the ben­e­fit is in­deed tax­able and is equal to the cost of the meal, less any pay­ment the em­ployee pays.

A 2004 court rul­ing found that a daily free meal pro­vided by a casino to its em­ploy­ees was a tax­able ben­e­fit, de­spite the fact that em­ployer-im­posed rules made it im­pos­si­ble for em­ploy­ees to bring their own food.

There is, how­ever, an ex­cep­tion for overtime meals. The CRA has stated that such meals will not be con­sid­ered a tax­able ben­e­fit pro­vided the cost of the meal is “rea­son­able” (gen­er­ally up to $17 in­clud­ing tax), the em­ployee works two or more hours of overtime ei­ther right be­fore or right af­ter his or her sched­uled hours of work, and the overtime is not fre­quent and is oc­ca­sional in na­ture (usu­ally less than three times a week).

IF AN EM­PLOYER PRO­VIDES A SUB­SI­DIZED MEAL TO AN EM­PLOYEE, THE MEAL IS NOT CON­SID­ERED A TAX­ABLE BEN­E­FIT IF THE EM­PLOYEE PAYS A “REA­SON­ABLE CHARGE”

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