Another fine mess

When it comes to taxes, the Trudeau government is looking seriously out of touch with small businesses, modest-income employees and even its own tax collectors. How else can you interpret its latest tax fiasco?

The Finance Department has just been deservedly roasted for a “tax fairness” plan with a proposal to penalize savings within small incorporated businesses, an attack on financial prudence Ottawa will hopefully have to scrap.

Now the government is trying to defuse a Canada Revenue Agency directive advising employers to treat employee discounts on merchandise as taxable income.

After this new CRA “guidance” became widely known, and strongly criticized by the Retail Council of Canada, Revenue Minister Diane Lebouthillier made an unimpressive attempt to put out the flames. She lamely responded there was no change in the law (irrelevant when CRA changes the interpretation) and that Ottawa wasn’t targeting retail workers. That’s no comfort if these workers, already living with modest incomes and increasing job insecurity, are hit with higher taxes because of the change.

She says CRA was only offering “assistance for employers” and is “committed to further clarifying the wording of the document to reflect this.” Meaning exactly what? Someone, please, get the minister a guidance counsellor.

This move is breathtakingly out of touch with a struggling retail sector. The last thing employers need right now is the cost of tracking the imputed value of employee discounts. And as thousands more retail workers are about to lose their jobs in the likely liquidation of Sears, what message is Ottawa sending them and to others in the sector?

The government has bungled here, whether it approved the CRA guidance (first stated in a July 7, 2016 document, Tax Folio S2-F3-C2) or if minister wasn’t aware of CRA’s change. It should stop pretending the measure isn’t new or isn’t significant. In CRA’s 2017 update of its Guide T4130 (E) for employers, the “discounts for merchandise” tax policy is clearly listed under “What’s new?”

The guide is also very clear that employee discounts will be taxed unless the discount is offered to “the general public or to certain groups of the public.”

Specifically, the CRA guide states “we consider discounts to be taxable in all the following situations:

- You make an arrangement that allows an employee to buy merchandise (other than old or soiled merchandise) for less than fair market value.

- You made a reciprocal arrangement with one or more other employees so that employees of one employer can buy merchandise at a discount from another employer.”

The guide values the taxable benefit as the difference between fair market value and the employee price. And fair market value is defined as the highest price that can be obtained in an open and unrestricted market.

So the employee benefit isn’t even compared with other discount prices offered to customers. Welcome to CRA, discount hunters, where the highest price is the law.

The minister should unequivocally kill this petty tangle of red tape and regressive taxation. Coming right after the exemption of U.S. media giant Netflix from collecting sales tax in Canada, it is a mockery of tax fairness.

—Halifax Chronicle Herald