Income Tax Folio S2-F3-C2, Benefits and Allowances Received from Employment

Series 2: Employers and Employees

Folio 3: Employment Benefits

Chapter 2: Benefits and Allowances Received from Employment

 

Summary

The purpose of this Chapter is to explain the federal income tax treatment of benefits and allowances received from employment. The Chapter discusses the specific provisions of the Act and the principles developed by the courts that establish which benefits and allowances are included in an employee’s income and the amount to be included.

For a less technical overview of employment benefits and allowances and a comprehensive list of common employment benefits and allowances, see Guide T4130 – Employers’ Guide Taxable Benefits and Allowances, or go to Benefits and allowances.

The CRA issues income tax folios to provide technical interpretations and positions regarding certain provisions contained in income tax law. Due to their technical nature, folios are used primarily by tax specialists and other individuals who have an interest in tax matters. While the comments in a particular paragraph in a folio may relate to provisions of the law in force at the time they were made, such comments are not a substitute for the law. The reader should, therefore, consider such comments in light of the relevant provisions of the law in force for the particular taxation year being considered.

 

Table of contents


Discussion and interpretation

Introduction

2.1 This Chapter generally applies to situations where there is an employer-employee relationship. To determine whether an individual is an employee or self-employed, see Guide RC4110, Employee or Self-Employed, or go to Canada Pension Plan (CPP) and Employment Insurance (EI) Rulings. Civil or common law will generally determine whether an employer-employee relationship exists.

Employee-shareholder

2.2 An individual who is both an employee and a shareholder of a corporation may receive benefits or allowances from the corporation. In order to determine the appropriate tax treatment of these benefits or allowances, it is necessary to establish whether the benefits or allowances have been conferred on the individual in their capacity as an employee or in their capacity as a shareholder. This is a question of fact that can only be determined on a case-by-case basis.

2.3 Unless the particular facts establish otherwise, there is a general presumption that an employee-shareholder receives a benefit or an allowance in their capacity as a shareholder when the individual can significantly influence business policy. This presumption may not apply if:

  • the benefit or allowance is available to all employees of the corporation; or
  • all of the employees are shareholders or individuals related to a shareholder, and the benefit or allowance is comparable (in nature and amount) to benefits and allowances generally offered to non-shareholder employees of similar-sized businesses, who perform similar services and have similar responsibilities.

2.4 Where an employee-shareholder receives a benefit or an allowance in their capacity as an employee, the federal income tax treatment is the same as described in the remainder of this Chapter. Where an employee-shareholder receives a benefit or an allowance in their capacity as a shareholder, the value of the benefit or allowance is included in the shareholder’s income under subsection 15(1). For more information, see Interpretation Bulletin IT-432R2, Benefits Conferred on Shareholders.

Definitions

2.5 Subsection 248(1) establishes that:

  • an office includes a position entitling an individual to a fixed or ascertainable stipend or remuneration;
  • an officer is a person holding an office;
  • employment is the position of an individual in the service of some other person; and
  • an employee is an individual holding employment.

Throughout this Chapter, a reference to employment includes an office and a reference to an employee includes an officer.

General overview

2.6 Under section 5, an individual’s employment income includes salary, wages, and other remuneration, including tips and gratuities. These amounts are included in employment income in the year they are received. The terms salary, wages, and other remuneration are not defined for purposes of section 5. Based on case law which relied on the ordinary meaning of the words (for example, dictionary definitions), an amount paid for services performed by an employee is generally salary, wages, and other remuneration.

2.7 Paragraphs 6(1)(a) and (b) generally include in an individual’s employment income all benefits and allowances received or enjoyed in the year because of employment.

2.8 Subsection 6(3) deems certain payments from an employer to an employee to be employment income. For more information, see Income Tax Folio S2-F3-C1, Payments from Employer to Employee.

Employment benefits

General

2.9 Generally, “the value of board, lodging, and other benefits of any kind whatever received or enjoyed … in respect of, in the course of, or by virtue of an office or employment” is included in an employee’s income under paragraph 6(1)(a).

2.10 Board and lodging is not defined in the Act. However, board generally includes accommodations and meals, whereas lodging only includes accommodations.

2.11 In The Queen v Savage, [1983] 2 SCR 428, 83 DTC 5409, the Supreme Court of Canada held that, “[t]he meaning of ‘benefits of whatever kind’ is clearly quite broad.” In Nowegijick v The Queen, [1983] 1 SCR 29, 83 DTC 5041, the Supreme Court of Canada interpreted the phrase in respect of to be, “the widest of any expression intended to convey some connection between two related subject matters.” Therefore, 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 under paragraph 6(1)(a).

2.12 Also, under paragraph 6(1)(a), benefits that an employer provides to an individual who does not deal at arm’s length with an employee, such as the employee’s spouse, child, or sibling, are generally included in the employee’s income. See Income Tax Folio S1-F5-C1, Related Persons and Dealing at Arm's Length for a discussion of the criteria used to determine whether persons deal with each other at arm’s length for purposes of the Act.

2.13 An employee may receive a benefit in various forms including:

  • the reimbursement of the employee’s personal or living expenses;
  • the reimbursement, in whole or in part, of the cost of an asset purchased and owned by the employee; and
  • the personal use of an employer’s property (for example, an employer’s cottage) for free or for a minimal charge.

2.14 In Lowe v The Queen, 96 DTC 6226, the Federal Court of Appeal confirmed that generally, the value of a benefit will be included in an employee’s income under paragraph 6(1)(a) where the employee or an individual not dealing at arm’s length with the employee:

  • receives an economic advantage measurable in monetary terms; and
  • is the primary beneficiary of the benefit.

This general rule is subject to some exceptions, which are discussed in 2.42 - 2.54.

Economic advantage

2.15 An employee or an individual not dealing at arm’s length with an employee, generally receives an economic advantage when an employer pays or provides a reimbursement for their personal or living expenses. An employee also receives an economic advantage when an employer pays for or reimburses the cost of an employee-owned asset, even if that asset is used for employment purposes. There is generally no economic advantage if the employee is simply restored to a previous economic position. This could occur, for example, by the reimbursement of:

  • employment expenses (such as the cost of a taxi to travel to a customer’s office); or
  • an expense which the employee must incur as a condition of employment (such as medical tests that impact the employee’s employment status).

2.16 A reimbursement is a payment made to repay an amount an employee spent on a specific expense and for which detailed receipts are provided. When an employee is required to submit receipts or show the employer how the amount was spent, the amount is considered a reimbursement even if the employer refers to it as an allowance.

2.17 An accountable advance is a payment for expenses to be incurred by an employee and for which the individual accounts with vouchers or receipts and returns any amount not spent. An accountable advance is considered a reimbursement.

2.18 The term personal or living expenses is defined in subsection 248(1). The Act establishes that an expense is personal in nature if the expense is not incurred for business purposes. In Symes v The Queen, [1993] 4 SCR 695, 48 DTC 6001, the Supreme Court of Canada held that there must be a business purpose in order for an expense to be deductible. The court determined that expenses that would have been incurred irrespective of the existence of the business, or that simply make the taxpayer available to the business, are personal expenses. In Sénéchal v The Queen, 2011 TCC 365, 2011 DTC 1357, the Tax Court confirmed that, “[a]n employer’s payment of an employee’s regular or current expenses constitutes a taxable benefit.” These decisions confirm that expenses incurred to make an individual available for work are personal expenses.

2.19 Generally, the cost of clothing worn or required to be worn in the performance of employment duties, other than a distinctive uniform or special clothing (see ¶2.68), is a personal expense of the employee. Further, the cost of special clothing that can be worn for both personal and employment purposes is also a personal expense.

Example 1 – Personal computer

 

An employee buys a new home computer for her family’s use. The employee occasionally uses the computer to check her office email account. Her employer reimburses part of the cost of the computer. As noted in ¶2.15, an employee receives an economic advantage when reimbursed, in whole or in part, for the purchase of a personally-owned asset, even if it is used for employment purposes. In this case, the employee has received an economic advantage and is the primary beneficiary. The reimbursement is included in her income under paragraph 6(1)(a).

Example 2 – Legal fees

 

An employee decides to sell his townhouse and buy a new single family home with a pool in the backyard. His employer pays the legal fees incurred on the real estate transactions. Since the legal fees are a personal expense, the employee has received an economic advantage. Because the employee is the primary beneficiary of the payment of the legal fees, the amount is included in his income under paragraph 6(1)(a).

2.20 Travel between an employee’s home, including a home office, and a regular place of employment (see ¶2.21) is generally personal travel. Any expenses related to that travel are personal expenses. However, if transportation between an employee’s home and a regular place of employment is provided by an employer for security reasons, or if public and private vehicles are not allowed or practical, then such travel is not considered personal. Where an employer requires an employee to proceed directly from home to a point of call (for example, a client’s office), return home from a point of call, or travel between two regular places of employment, such travel is employment travel. Any expenses related to that travel are employment expenses.

2.21 A regular place of employment is any location where an employee regularly reports for work or performs their employment duties. A particular location may be considered a regular place of employment even though the employee may only work at that location on a periodic basis during the year (for example, once or twice a month). A regular place of employment does not have to be a place of business of the employer. An employee may have more than one regular place of employment if the employee regularly performs their employment duties at more than one work location.

2.22 If an employee combines personal and employment travel, the primary purpose of the particular trip determines if the trip is for personal or employment purposes. For more information, go to Personal driving (personal use), or see Chapter 2 of Guide T4130.

Example 3 – Travel from home office

 

An employee is reimbursed for the kilometres travelled from home to her employer’s head office. The employee regularly works from home, but attends bi-weekly meetings at the head office. The head office is a regular place of employment for the employee. As noted in ¶2.20, travel between an employee’s home (including a home office) and a regular place of employment is personal travel. Therefore, travel between the head office and her home is personal travel. In this case, the reimbursement of the employee’s personal travel expenses is included in the employee’s income under paragraph 6(1)(a).

Example 4 – Travel between work locations

 

A building inspector works for one employer, but has several work locations. He is reimbursed for reasonable expenses incurred to travel between work locations. As noted in ¶2.20, travel between regular places of employment is employment travel. Since the employee is reimbursed for employment travel, the reimbursement is not included in his income under paragraph 6(1)(a).

Primary beneficiary

2.23 Whether a benefit is included in an employee’s income under paragraph 6(1)(a) depends on whether the primary beneficiary of the benefit is the employer or the employee. Generally, an employee is the primary beneficiary if the employer pays for or reimburses an employee’s personal or living expense. In McGoldrick v Canada, 2004 FCA 189, 58 DTC 6407, the court held that, “[w]here something is provided to an employee primarily for the benefit of the employer, it will not be a taxable benefit if any personal enjoyment is merely incidental to the business purpose ….”

2.24 To determine who is the primary beneficiary of a particular benefit, all of the relevant facts must be reviewed on a case-by-case basis. It is the employer's responsibility to determine whether the primary beneficiary is the employer or the employee. 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 beneficiary of the benefit:

  • Does the employer have a business purpose for providing the benefit?
  • Is the benefit required for the employee to perform the employment duties more effectively?
  • Is the benefit required to fulfill a condition of employment?
  • Does the employer have a moral or contractual obligation to provide the benefit to ensure that employees are not unduly subject to harm from performing the employment duties?

2.25 Where an employer requires an employee to take a trip for employment-related reasons, the employer is the primary beneficiary of the trip. In such cases, the employee is engaged directly in employment activities during a substantial part of each day of the trip. However, where an employee receives a trip as an employment incentive or award, the employee is the primary beneficiary of the trip. If the employee is required to perform employment duties during that trip, any benefit included in the employee’s income may be reduced for any actual employment-related activity.

Example 5 – Home security system

 

A prosecutor pays a reasonable amount for a home security system. The system is purchased because the prosecutor’s safety at home was at risk due to his employment duties. His employer reimbursed him for the cost of the home security system. The employer was morally and contractually obligated to provide security for its employees. As a result, the employer was the primary beneficiary (see ¶2.24) and the reimbursement is not included in the prosecutor’s income under paragraph 6(1)(a).

Value of a benefit

2.26 The employer must determine the value of the benefit to include in an employee’s income. In The Queen v Carroll A. Spence, 2011 FCA 200, 2011 DTC 5111, the Federal Court of Appeal determined that the value of a benefit for purposes of paragraph 6(1)(a) is the fair market value of the benefit. Fair market value is the highest price expressed 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. The fair market value of the benefit less any amount paid by the employee is the amount included in the employee’s income under paragraph 6(1)(a).

Example 6 – Recreational property

 

An employer owns a cottage, which it rents for $2,000 per week (including fees and taxes). The employer offers an employee and her family the use of the cottage free of charge for their two week vacation. By having the personal expense of a family vacation paid for, the employee received an economic advantage. Therefore, a benefit of $4,000 (that is, the fair market value) for the use of the property is included in her income under paragraph 6(1)(a).

Third-party benefits

2.27 As mentioned in ¶2.11, the phrase in respect of employment in paragraph 6(1)(a) has a broad meaning. This means that a benefit may be included in an employee’s income even if the benefit is not provided by the employer.

2.28 When an employee receives a discount on merchandise because of their employment, the value of the discount is generally included in the employee’s income under paragraph 6(1)(a). The discount may be provided by the employer or by a third-party. The value of the benefit is equal to the fair market value of the merchandise purchased, less the amount paid by the employee. However, no amount is included in the employee’s income if the discount is also available to the general public or to specific public groups.

Example 7 – Discounts on merchandise

 

Employees are offered a large discount to buy software for their personal computers from their employer’s supplier. The discount is not available to the public. An employee purchases the software for personal use at the reduced price. Since he received the discount because of his employment, the difference between the fair market value of the software and the amount he paid is included in his income under paragraph 6(1)(a).

Example 8 – Cash rebates

 

An air conditioner manufacturer sells its products to its employees for their personal use at prices that reflect the fair market value of the units. However, the manufacturer subsequently provides a cash rebate to the employees. The rebate is only available to the employees. In this case, since the net price paid by employees for an air conditioner is less than its fair market value, the amount of the rebate is included in the employees’ income under paragraph 6(1)(a).

Example 9 – Supplier award

 

An employee is awarded a Caribbean cruise by her employer’s third-party supplier. The supplier provides the vacation trip as a reward for reaching a sales target. The employee did not solicit or enter a contest for the award. Although there is no employer-employee relationship between the employee and the supplier, she received the trip because of her employment. Therefore, the fair market value of the trip is included in her employment income under paragraph 6(1)(a).

Personal capacity

2.29 If a person receives a benefit or an amount in their capacity as an individual, rather than as an employee, the benefit or amount is not included in the person’s income. For a person who is dealing at arm’s length with an employer and who is not a person of influence (such as an executive who controls employer decisions), a benefit or an amount is generally received in the person’s capacity as an individual if it is:

  • provided for humanitarian or philanthropic reasons;
  • provided voluntarily;
  • not based on employment factors such as performance, position, or years of service; and
  • not provided in exchange for employment services.

An amount or benefit that is received by a person of influence or a person not dealing at arm’s length with the employer, is generally received in the person’s capacity as an individual if it satisfies the above conditions and the person received it on the same basis as other employees dealing at arm’s length with the employer.

Example 10 – Disaster relief

 

A grocery store has several arm’s-length employees whose homes were affected by severe spring floods. The company provides financial assistance to the employees to help them in their recovery efforts. The assistance that each employee receives is based on their personal needs and the extent of damage to their property irrespective of the years of service with the company. In this case, the financial assistance received by the employees is received in each person’s capacity as an individual and would not be included in their income. For more information, go to Financial assistance payments from your employer or to your employee.

Automobile benefits

2.30 Generally, the personal use of an employer-provided vehicle, whether owned or leased by the employer, is a benefit received from employment. The method used to calculate the amount of the benefit to be included in the employee’s income depends on whether the vehicle is a motor vehicle or an automobile as defined in subsection 248(1).

2.31 The benefit from the use of a vehicle that does not meet the definition of an automobile is included in an employee’s income under paragraph 6(1)(a). For more information, go to Benefit for motor vehicles not defined as an automobile, see Chapter 2 of Guide T4130, or see ¶23 of Interpretation Bulletin IT-63R5, Benefits, Including Standby Charge for an Automobile, from the Personal Use of a Motor Vehicle Supplied by an Employer - After 1992.

2.32 The benefit from the use of an automobile is included in an employee’s income under paragraphs 6(1)(e), (k), or (l). A standby charge benefit is included in the employee’s income under paragraph 6(1)(e) for the personal use of an employer-provided automobile. As well, an operating expense benefit may apply under paragraph 6(1)(k). If an operating expense benefit is not included in the employee’s income under paragraph 6(1)(k), paragraph 6(1)(l) may apply. Generally, paragraph 6(1)(l) applies where an employee (including an employee of a partner in a partnership) or a person related to the employee, receives a payment for operating expenses for the personal use of an automobile. For more information, go to Automobile and motor vehicle benefits, see Chapter 2 of Guide T4130, or see Interpretation Bulletin IT-63R5, Benefits, Including Standby Charge for an Automobile, from the Personal Use of a Motor Vehicle Supplied by an Employer - After 1992.

Group sickness or accident insurance plan

2.33 The term group sickness or accident insurance plan is not defined in the Act. Generally, a group sickness or accident insurance plan may be described as an arrangement between an employer and its employees which provides for the payment of benefits (periodic or lump sum) to an employee who suffers a loss as a result of sickness, maternity, or accident. To qualify as a group plan, a group sickness or accident insurance plan must have at least two employee plan members. Reference to a group sickness or accident insurance plan includes:

  • a sickness or accident insurance plan;
  • a disability insurance plan; and
  • an income maintenance insurance plan.

2.34 Under paragraph 6(1)(e.1), employer-paid premiums or contributions to a group sickness or accident insurance plan that provides lump-sum payments or pays benefits that are not compensation for the loss of employment income are included in the employee’s income in the year the premiums or contributions are made. The tax treatment of benefits received from such plans is discussed in ¶2.43. For more information on group sickness or accident insurance plans, go to Income maintenance plans and other insurance plans, or see Chapter 3 of Guide T4130.

2.35 Paragraph 6(1)(f) includes in employment income benefits received from an employer-funded group sickness or accident insurance plan that provides periodic payments as compensation for the loss of employment income. These plans are often referred to as wage-loss replacement plans. The amounts are included in the employee’s income net of any contributions made by the employee. The tax treatment of employer contributions to such plans is discussed in ¶2.42. More information is also available in Interpretation Bulletin IT-428, Wage Loss Replacement Plans.

Group term life insurance policy

2.36 An employee whose life is insured under a group term life insurance policy is required to include an annual benefit in income under subsection 6(4). This includes a group term life insurance policy that is provided through an employee life and health trust. The amount of the benefit is calculated under Part XXVII of the Regulations. Employee contributions to a group term life insurance policy reduce the annual benefit that is included in income. For more information about calculating this benefit, go to Group term life insurance policies – Employer-paid premiums, or see Chapter 3 of Guide T4130.

Other employment benefits

2.37 Employees who are required to move for employment reasons may have to sell their house at a loss. If an employer compensates an employee for such a loss, a benefit is included in the employee’s income under paragraph 6(1)(a). The method of calculating that benefit depends on whether the loss is considered an eligible housing loss (discussed in ¶2.39).

2.38 Compensation from an employer in respect of a housing loss other than an eligible housing loss is deemed by subsection 6(19) to be a benefit received from employment. The housing loss benefit is included in the employee’s income under paragraph 6(1)(a). Subsection 6(21) defines a housing loss at any particular time as the amount by which A exceeds B, where:

A is the greater of:

  • the adjusted cost base of an employee’s residence at that time (generally, the employee’s cost to buy the residence); and
  • the highest fair market value of the residence during the six-month period ending at that time.

B is:

  • if the residence is sold before the end of the first tax year that begins after that time, the lesser of the proceeds for the residence and the fair market value of the residence at that time; or
  • in any other case, the fair market value of the residence at that time.

In most cases, the housing loss will be the actual loss on the sale of an employee’s residence.

2.39 An eligible housing loss is defined in subsection 6(22) as a housing loss in respect of an eligible relocation of an employee or an individual who does not deal at arm’s length with the employee. An employee can designate only one residence for purposes of the eligible housing loss. An eligible relocation in respect of an individual is a relocation that occurs to enable the individual to be employed at a new work location, where the new residence is located at least 40 kilometres closer to the new work location than the old residence. When an employer compensates an employee for an eligible housing loss, the first $15,000 of the compensation is not included in the employee’s income. However, one-half of the compensation that exceeds $15,000 is deemed by subsection 6(20) to be a benefit received from employment and included in the employee’s income under paragraph 6(1)(a). For examples of how to calculate an eligible housing loss benefit, go to Examples - housing loss.

2.40 Where an employee receives a loan or interest subsidies from employment, a benefit is generally included in the employee’s income by subsections 6(9), (15), or (23). For more information go to interest-free or low-interest loans, see Guide T4130, or see Interpretation Bulletin IT421R2, Benefits to individuals, corporations and shareholders from loans or debt.

2.41 For other common employment benefits, go to Benefits and allowances, or see Guide T4130.

Excluded benefits

Health and medical

2.42 Employer-paid premiums or contributions to certain health and medical plans are excluded from an employee’s income pursuant to subparagraph 6(1)(a)(i). These plans include:

(a) a wage-loss replacement plan (see ¶2.35);

(b) a private health services plan (for more information, see Interpretation Bulletin IT-339R2, Meaning of “private health services plan” and go to New position on private health services plans – Questions and answers); and

(c) a plan described in (a) or (b) that is provided through an employee life and health trust (for more information, go to Employee life and health trust (ELHT).

2.43 Health and medical benefits (for example, subsidized or free dental services, reimbursement of prescription drugs) received from certain employer-funded plans are excluded from an employee’s income by subparagraph 6(1)(a)(i). These plans include:

(a) a private health services plan;

(b) a group sickness or accident insurance plan as described in ¶2.34;

(c) a plan described in (a) or (b) that is provided through an employee life and health trust.

Example 11 – Prescription medication

 

An employer maintains a self-insured plan to reimburse its employees for medical and dental expenses. Employees must submit receipts and can be reimbursed up to a maximum of $1,000 per year for expenses covered by the plan. The plan qualifies as a private health services plan. An employee submits his pharmacy receipts for prescription medication and is reimbursed by the plan. In this case, since the plan is a private health services plan, the reimbursement is excluded from the employee’s income by subparagraph 6(1)(a)(i).

Disability-related

2.44 An employer may pay or provide reasonable allowances, in a year, for transportation between an employee’s home and workplace or parking at or near the workplace. Paragraph 6(16)(a) excludes these benefits from an employee’s income if the employee:

2.45 Similarly, paragraph 6(16)(b) excludes from an employee’s income the value of employer-provided attendant services to help the employee perform the duties of employment or a reasonable allowance received for such services. The exclusion is available if the employee is eligible for the disability tax credit in the year, or would have been eligible, but for paragraph 118.3(1)(c).

Counselling services

2.46 Pursuant to subparagraph 6(1)(a)(iv), a benefit is excluded from an employee’s income where an employer provides or pays for counselling services for:

a) the re-employment or retirement of the employee; or

b) the mental or physical health of the employee or a person related to the employee, other than a benefit for using a recreational facility or club as described in paragraph 18(1)(l).

2.47 The term counselling services is not defined in the Act, and is therefore given its ordinary meaning (for example, dictionary definition). Generally, the term counselling services refers to guidance and assistance provided by a trained person on a professional basis. This includes counselling services for tobacco, drug, or alcohol abuse, or for stress management.

2.48 The value of employer-paid legal and financial counselling services for an employee is generally not excluded from an employee’s income by subparagraph 6(1)(a)(iv). The value of such services is included in the employee's income under paragraph 6(1)(a) unless the services meet the description in ¶2.46(a). For more information, go to Counselling services, or see Chapter 3 of Guide T4130.

Example 12 – Personal trainer

 

An employer pays for the cost of a personal trainer for an employee. The personal trainer provides a variety of services to the employee. Some of these services qualify as counselling for the employee’s mental and physical health. Unless the value of any benefit received from such counselling services can be separated from the value of any benefits received from the other non-counselling services, subparagraph 6(1)(a)(iv) would not apply. As a result, the fair market value of all the services provided by the personal trainer is included in the employee’s income under paragraph 6(1)(a).

Education for family members

2.49 Subparagraph 6(1)(a)(vi) provides that any benefit an employee’s family member receives or enjoys under an educational program offered by an arm’s length employer is not included in the employee’s income. The benefit must not be a substitute for salary, wages, or other remuneration. This generally applies to free or reduced tuition provided to an employee’s family member to attend an elementary, secondary, or post-secondary school (private or public). The benefit is included in the family member’s income under subparagraph 56(1)(n)(i). The scholarship exemption in subsection 56(3) may exclude some or all of the benefit from the family member’s income. For more information, see Chapter 3 of Guide T4130, or see ¶3.18 of Income Tax Folio S1-F2-C3, Scholarships, Research Grants and Other Education Assistance.

Example 13 – Discounted tuition fees

 

A private elementary school offers a program that provides discounted tuition fees to the children of its arm's length employees. The discount is not a substitution for any part of the employees’ salary, wages, or other remuneration. In this case, subparagraph 6(1)(a)(vi) excludes the value of the tuition discount from the employee’s income. The value of the tuition discount is included in the child’s income under paragraph 56(1)(n), to the extent that the amount exceeds any scholarship exemption.

Example 14 – Contribution towards a registered education savings plan (RESP)

 

An employer makes a contribution towards an RESP for an employee’s 5-year-old daughter. The employee and his employer are dealing at arm’s length. As noted in ¶2.49, subparagraph 6(1)(a)(vi) applies when an employee’s family member receives or enjoys a benefit under an employer’s educational program. However, the daughter does not receive or enjoy any benefit at the time the contribution is made. Accordingly, the employer’s contribution is not excluded from the employee’s income by subparagraph 6(1)(a)(vi). The amount is included in his income under paragraph 6(1)(a) in the year the contribution is made.

Part-time employment

2.50 Subsection 81(3.1) excludes from a part-time employee’s income reasonable allowances for, or reimbursements of, travel expenses incurred in getting to and from their part-time employment. The exclusion applies if:

  • the employee and the employer were dealing at arm's length
  • throughout the period that the expenses were incurred, the employee had other employment, was carrying on a business, or was a part-time teacher or professor working for a designated educational institution in Canada; and
  • the part-time employment was performed at a location not less than 80 kilometres from:
    • both the employee's home and the place of the other employment or business; or
    • the employee’s home if the employee was a part-time teacher or professor.

2.51 A part-time employee is generally someone who, for a day, week, month, or year, is employed for irregular hours of duty or for specific intermittent periods (or both), and whose services are not required for the normal work day, week, month, or year.

For more information, see ¶54 of Interpretation Bulletin IT-522R, Vehicle, Travel and Sales Expenses of Employees.

Special work sites and remote work locations

2.52 Employees working at a special work site or remote work location may receive free board and lodging or an allowance in respect of such. Paragraph 6(6)(a) excludes the value of this benefit or allowance (not in excess of a reasonable amount) from an employee's income. Similarly, certain transportation benefits and allowances related to a special work site or a remote work location are excluded from income by paragraph 6(6)(b). The transportation exclusion only applies if the employee also receives a board or lodging benefit or allowance for the same period at the special work site or the remote work location.

2.53 A special work site is a location where, among other things, the duties performed by the employee are of a temporary nature. The duties performed by an employee at a particular work location are not considered temporary where the employer requires the duties on an ongoing basis, even though the particular employee’s contract is short term. As well, a special work site does not have to be in Canada, and may be in a large city.

2.54 A particular work location is generally considered to be a remote work location if the nearest established community with a population of 1,000 or more is no closer than 80 kilometres by the most direct route normally travelled in the circumstances. For more information, go to Board, lodging, and transportation at special work sites, go to Board, lodging, and transportation at remote work locations, see Chapter 3 of Guide T4130, or see Interpretation Bulletin IT-91R4, Employment at Special Work Sites or Remote Work Locations.

Employment allowances

2.55 Paragraph 6(1)(b) includes in an employee’s income all allowances or advances received in the year for personal or living expenses, or for any other purpose, unless specifically excluded by another provision. These exclusions are discussed in ¶2.44, 2.45, 2.50, 2.52, 2.57 - 2.62, and 2.65.

2.56 An allowance or an advance is any periodic or lump-sum payment that an employee receives without having to account for its use. An allowance or advance is:

  • usually an arbitrary amount that is predetermined without using the actual cost;
  • usually for a specific purpose; and
  • used as the employee chooses, since the employee does not provide receipts.

Excluded allowances

Special, separation, or representational allowances

2.57 Subparagraph 6(1)(b)(i) excludes from an employee’s income an allowance for travel or for personal or living expenses where the allowance is either:

  • set in an Act of Parliament; or
  • paid under the authority of the Treasury Board to individuals who are appointed or engaged under the Inquiries Act, for the discharge of their duties under the appointment or engagement.

2.58 The Canadian Forces provides a travel or separation allowance to its members to cover additional living expenses for service-related relocations in Canada and the resulting short-term separation from the members’ dependants and household goods and effects. Subparagraph 6(1)(b)(ii) excludes these allowances from an employee’s income.

2.59 Subparagraph 6(1)(b)(iii) excludes from an employee’s income representation or special allowances received in respect of a period of absence from Canada by employees who are deemed to be residents of Canada under paragraph 250(1)(b), (c), (d), or (d.1). These employees include members of the Canadian Forces, diplomatic staff, and individuals who perform services under a prescribed international development assistance program of the Government of Canada. A representation or special allowance is an amount paid to an employee who is transferred or assigned outside of Canada, has different living conditions, and may incur higher living costs. The employer pays the allowance to cover the employee’s additional expenses for accommodation, food, and travel. The allowance is designed to compensate a loss or additional expenses incurred because of the employment outside of Canada.

2.60 Subparagraph 6(1)(b)(iv) excludes from an employee’s income certain representation or other special allowances received in respect of a period when the employee was in Ottawa, as an agent-general of a province.

Board and lodging allowances - amateur athletes and members of recreational programs

2.61 Subparagraph 6(1)(b)(v.1) generally excludes a board and lodging allowance (up to a monthly indexed amount) from the income of an amateur player on a sports team or a member of a recreational program of the employer, but only for individuals under 21 years of age. The employer must be a registered charity or a non-profit organization described in paragraph 149(1)(l). For more information, go to Board and lodging allowances paid to players on sports teams or members of recreation programs, or see Chapter 3 of Guide T4130.

Example 15 – Amateur athlete

 

A 19-year-old amateur athlete plays on an under-21, for-profit soccer team based in Toronto. He moves to Toronto from Sudbury, Ontario. He receives no compensation other than a board and lodging allowance from the team. Since his employer is not a registered charity or a non-profit organization as described in paragraph 149(1)(l), the allowance is not excluded from his income by subparagraph 6(1)(b)(v.1). The allowance is for his personal or living expenses and is included in his income under paragraph 6(1)(b).

Travel allowances

2.62 Reasonable allowances for travel expenses (other than motor vehicle expenses) are excluded from an employee’s income by subparagraphs 6(1)(b)(v), (vi), and (vii) when the expenses are incurred by:

  • an employee employed in connection with the selling of property or the negotiating of contracts for the employer;
  • a member of the clergy while carrying out the duties of that employment; or
  • any other employee while carrying out employment duties away from the municipality and metropolitan area, if there is one, where the employee’s regular place of employment is located.

For more information, go to Travel allowance, see Chapter 3 of Guide T4130, or see ¶45 - 49 in Interpretation Bulletin IT-522R, Vehicle, Travel and Sales Expenses of Employees.

2.63 The word travel is not defined in the Act, and is therefore given its ordinary meaning (for example, dictionary definition). In general, expenses normally incurred while travelling from one place to another, including food, accommodation, and incidentals, are considered travel expenses.

2.64 The Act does not define what a reasonable travel allowance is. However, an allowance that approximates the reasonable out-of-pocket expenses the employee will incur while travelling for work is generally considered reasonable.

Motor vehicle allowances

2.65 Subparagraphs 6(1)(b)(v), (vi), and (vii.1) exclude from an employee’s income a reasonable motor vehicle allowance received by an employee employed in connection with the selling of property or the negotiating of contracts for the employer, a member of the clergy, or any other employee, for motor vehicle expenses (for example, the cost of fuel, licences, and insurance) incurred while performing employment duties.

2.66 Subparagraph 6(1)(b)(x) deems a motor vehicle allowance not to be reasonable if it is not based solely on a per-kilometre rate. Further, an allowance is deemed not to be reasonable by subparagraph 6(1)(b)(xi) if an employee receives both an allowance for the vehicle and a reimbursement for expenses (in whole or in part), for the same use of the motor vehicle. For example, a combination of a flat-rate per month and an otherwise reasonable per-kilometre allowance is deemed not to be reasonable. Allowances deemed not to be reasonable by subparagraph 6(1)(b)(x) or (xi) are included in an employee's income under paragraph 6(1)(b).

2.67 Generally, a per-kilometre rate will be considered reasonable if it is equal to the rate prescribed for the particular province in section 7306 of the Regulations. However, a rate that differs from the prescribed rates may also be considered reasonable depending on the particular circumstances. A per-kilometre rate is also considered reasonable if the rate is designed to cover the employee's out-of-pocket costs to use the motor vehicle in the course of performing the employment duties.

For more information, go to Automobile and motor vehicle allowances, see Chapter 2 of Guide T4130, or see Interpretation Bulletin IT-63R5, Benefits, Including Standby Charge for an Automobile, from the Personal Use of a Motor Vehicle Supplied by an Employer - After 1992.

Reporting and withholding requirements

2.69 Generally, the fair market value of benefits and allowances that are required to be included in an employee’s income under subsection 6(1), must be reported on a T4 slip or T4A slip. Income tax should generally be withheld from these benefits and allowances. For information about which benefits and allowances are subject to income tax withholdings, Canada Pension Plan contributions, and employment insurance premiums, see Guide T4130, Guide T4001, Employers’ Guide - Payroll Deductions and Remittances, or go to Canada Pension Plan and Employment Insurance Explained.

Application

This Chapter, which may be referenced as S2-F3-C2, is effective July 7, 2016. It replaces and cancels Interpretation Bulletin IT-470R (Consolidated), Employees’ Fringe Benefits, ¶7 and 8 of IT-131R2, Convention expenses, ¶12 of IT-148R3, Recreational Properties and Club Dues, and Income Tax Technical News No. 40 .

Any technical updates from the cancelled interpretation bulletins or other publications noted can be viewed in the Chapter History page.

Except as otherwise noted, all statutory references herein are references to the provisions of the Income Tax Act R.S.C 1985, c.1, (5th Supp.) as amended and all references to a Regulation are to the Income Tax Regulations, C.R.C. 1978, c. 945, as amended.

Links to jurisprudence are provided through CanLII.

Income tax folios are available in electronic format only.

Reference

Subsections 5(1), 6(3), 6(4), 6(6), 6(9), 6(15), 6(16), 6(19) to (23),15(1), and 81(3.1); paragraphs 6(1)(a), (b), (e), (e.1), (f), (k), (l), and 18(1)(l);

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