TAX CLINIC

Team-build­ing­ben­e­fitscan­haveahid­den­cost

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

The tax im­pli­ca­tions of em­ployee ben­e­fits.

Business own­ers of­ten of­fer var­i­ous em­ployee in­cen­tives to en­cour­age work­ers to join them and, once there, boost team spirit and a sense of be­long­ing. Dur­ing a re­cent tax con­fer­ence, Canada Rev­enue Agency was asked about a num­ber of spe­cific em­ployee perks and what the tax con­se­quences of of­fer­ing such ben­e­fits to em­ploy­ees would be, both from the em­ployer’ s point of view (i.e ., tax de­ductibil­ity) and the em­ployee’ s po­si­tion(i.e ., whether it’ s a tax­able ben­e­fit from em­ploy­ment .) Specif­i­cally, the CRA was asked about: after-work cock­tails, team lunch es, a re­lax­ation area for em­ploy­ees with pool ta­bles and ar­cade games, free bi­cy­cle park­ing and per­sonal ath­letic coach­ing for em­ploy­ees, such as long dis­tance run­ning train­ing.

Oc­ca­sion­ally, these types of cor­po­rate ex­pen­di­tures are de­nied by the CRA in the course of an au­dit on the ba­sis that the ex­penses are not be­ing in­curred to earn in­come. In ad­di­tion, a CRA au­di­tor is some­times temp ted to im­pose a tax­able ben­e­fit to em­ploy­ees for the value of such perks. Un­der the tax rules, a cor­po­ra­tion can deduct rea­son­able ex­penses for the pur­pose of earn­ing in­come. The value of any “ben­e­fit” re­ceived by an em­ployee by virtue of em­ploy­ment must also be in­cluded in the em­ployee’ s in­come.

In each ben­e­fit ex­am­ple cited above, the cor­po­ra­tion ar­gued that the ben­e­fits to the com­pany were sig­nif­i­cant since they boost em­ployee morale and team spirit. This ul­ti­mately leads to less em­ployee turnover and avoids the costs associated with train­ing new staff. It also en­cour­ages em­ploy­ees to oc­ca­sion­ally work long hours to meet var­i­ous cor­po­rate dead­lines.

The CR A listed four cri­te­ria it uses to de­ter­mine whether a tax­able ben­e­fit ex­ists: Has the em­ployee re­ceived an eco­nomic ad­van­tage? Is it mea­sur­able and quan­tifi­able? Does the ben­e­fit pri­mar­ily ben­e­fit the em­ployee or the em­ployer? And, was the ben­e­fit con­ferred in con­nec­tion with em­ploy­ment?

Us­ing these cri­te­ria, the CR A felt that if an em­ployer paid for a coach to al­low an em­ployee to com­plete a marathon, it’ s pri­mar­ily the em­ployee who ben­e­fits and it should there­fore be treated as a tax­able em­ploy­ment ben­e­fit. On the other hand, if the value of a ben­e­fit, such as free bi­cy­cle park­ing, isn’ t eas­ily quan­tifi­able and mea­sur­able, the CR A’ s view is that it would not be a tax­able ben­e­fit.

Fi­nally, the CRA re­it­er­ated its long­stand­ing po­si­tion on em­ployer- paid so­cial events, such as an after-work cock­tail hour or team lunch and in­ter­nal recre­ational fa­cil­i­ties, find­ing that both sit­u­a­tions gen­er­ally do not give rise to tax­able em­ploy­ment ben­e­fits.

THE VALUE OF ANY “BEN­E­FIT” RECEIVEDBY AN EM­PLOYEE BY VIRTUE OF EM­PLOY­MENT MUST ALSO BE IN­CLUDED IN THE EM­PLOYEE’S IN­COME

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