Canadian Payroll Reporter - sample

News Published 12 times a year by Thomson Reuters Canada Ltd. Subscription rate: $179 per year Customer Service Tel: (416) 609-3800 (Toronto) (800) 387-5164 (outside Toronto) Fax: (416) 298-5106 E-mail: carswell.customerrelations @thomsonreuters.com Website: www.carswell.com One Corporate Plaza 2075 Kennedy Road Toronto, Ontario, Canada M1T 3V4 Director, Carswell Media Karen Lorimer Publisher/Editor-in-Chief Todd Humber Editor Sheila Brawn sbrawn@rogers.com Editor/Supervisor Sarah Dobson Assistant Editor Mallory Hendry Marketing Manager Robert Symes rob.symes@thomsonreuters.com (416) 649-9551 Circulation Co-ordinator Keith Fulford keith.fulford@thomsonreuters.com (416) 649-9585 Payroll Reporter Can R Can R adian adian a www.payroll-reporter.com ©2016 Thomson Reuters Canada Ltd ISBN/ISSN: 978-0-7798-2810-4 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, electronic, photocopying, recording or otherwise without the written permission of the publisher (Carswell, a Thomson Reuters business). Return Mail Registration # 1522825 | Return Postage Guaranteed Paid News Revenue Toronto Canadian Payroll Reporter is part of the Canadian HR Reporter group of publications: • Canadian HR Reporter — www.hrreporter.com • Canadian Occupational Safety magazine — www.cos-mag.com • Canadian Payroll Reporter — www.payroll-reporter.com • Canadian Employment Law Today — www.employmentlawtoday.com • Canadian Labour Reporter — www.labour-reporter.com See carswell.com for information September 2016 | CPR or whether it merely restores the employee to her previous economic situation. The chapter states that an employee receives an economic advantage "when an employer pays for or reim- burses the cost of an employee- owned asset, even if that asset is used for employment purposes." For instance, if an employer reimbursed an employee for the cost of a new home computer that the employee's family uses, but on which the employee also occasionally checks a work e- mail account, the CRA states the employee would receive an eco- nomic advantage, making the re- imbursement a taxable benefit. By contrast, if an employer reimbursed an employee for the cost of a taxi to go to a client's of- fice, the employee would be re- paid for money she spent rather than receiving an economic ad- vantage, so the reimbursement would not be a taxable benefit. Another factor the CRA takes into account is the primary ben- eficiary of the benefit. If it is the employee, the benefit or allow- ance is taxable. If it is the em- ployer, it is not taxable. The CRA says employers must look at each situation individually, taking into account all of the relevant facts. "Although no single factor may be conclusive, a positive answer to one or more of the following questions may suggest that the employer is the primary benefi- ciary of the benefit," the chapter states. It suggests employers ask themselves questions such as: • Is there a business purpose for providing the benefit? • Is the benefit necessary for the employee to be able to carry out his employment duties more effectively? • Does the benefit fulfill a condi- tion of employment? • Does the employer have "a moral or contractual obliga- tion" to provide the employee with the benefit as a way to ensure that she is "not unduly subject to harm" from doing her job? To illustrate how harm and a moral or contractual obligation may be factors, the CRA pro- vides an example of a situation where an employer reimburses an employee who is a prosecutor for the cost of installing a home security system. "The system is purchased because the prosecutor's safety at home was at risk due to his employment duties," the agency writes. "The employer was morally and contractually obligated to provide security for its employ- ees. As a result, the employer was the primary beneficiary and the reimbursement is not included in the prosecutor's in- come under paragraph 6(1)." The CRA also takes into con- sideration whether an employee is receiving a benefit or an allow- ance in their capacity as an em- ployee or as an individual. This is important because the benefit or allowance is only included in the person's income if they receive it as an employee. For someone who is not a per- son of influence (such as an ex- ecutive who controls employer decisions) and who deals with the employer at arm's length, the chapter states that the CRA will consider the person to receive a benefit or an amount in their capacity as an individual rather than as an employee if it is: • provided voluntarily for hu- manitarian or philanthropic reasons, • not based on employment factors (e.g., years of service, performance, etc.), and • not provided in exchange for employment services. If an employer confers a ben- efit or an amount on someone who is a person of influence or someone who does not deal at arm's length with the employer, the CRA will consider the person to receive the benefit or amount in their capacity as an individual rather than an as employee if the previously stated conditions ap- ply and if the person received it on the same basis as other em- ployees who deal at arm's length with the employer. The chapter also discusses the CRA's rationale for taxing some benefits provided by third par- ties. It states that based on a Su- preme Court of Canada interpre- tation of the phrase "in respect of " in paragraph 6(1)(a) of the In- come Tax Act, "there only needs to be a small connection between a benefit and the employment for the benefit to be included in the employee's income." As a result, benefits employees receive from third parties may be taxable even though the employ- er is not the one providing them. For instance, the CRA states that if an employee receives a dis- count on merchandise from an employer's supplier, the value of the discount is generally included in the employee's income as a tax- able benefit unless the discount is available to the general public or to specific public groups. When benefits are taxable, employers must determine the value of them to include in an employee's income. The chapter explains that based on court cas- es, the value of a benefit is its fair market value less any amount the employee paid for it. The chapter says fair market value "is the highest price ex- pressed in terms of money that can be obtained in an open and unrestricted market between informed and prudent parties, who are dealing at arm's length and under no compulsion to buy or sell." Besides providing the legisla- tive and legal rationale for tax- ing benefits and allowances, the chapter discusses how the CRA treats specific benefits and allow- ances, including those related to automobiles, group term life in- surance, and board and lodging. It also provides links to CRA ad- ministrative policies on a number of other benefits and allowances. With all new folios, the CRA provides a three-month window for individuals and organiza- tions to send in comments on the structure and content. Read- ers have until Oct. 7 to provide feedback on the new benefits and allowances folio. from FOLIO on page 3 Taxing of third-party benefi ts also clarifi ed

• Cover