Tax Tip[] Employee Benefits

CRA Announces Policy Changes for Employee Benefits (AMENDED Dec 17, 2009)

“The Canada Revenue Agency (CRA) has announced policy changes for taxable employment benefits for 2009.”

The Canada Revenue Agency (CRA) has announced policy changes for taxable employment benefits for 2009. These changes impact employers for income tax purposes and may also impact the GST/HST input tax credits (ITCs) that employers can claim.

Effective for 2009, the CRA will consider no taxable benefit to arise for overtime meals and allowances if:

  • the value of a meal or meal allowance is reasonable (a value of up to $17 per meal will generally be considered reasonable);
  • the employee works two or more hours of overtime right before or right after his or her scheduled hours of work; and
  • the overtime is infrequent and occasional in nature (less than three times a week). This condition may also be met where the meal or allowance is provided three or more times per week on an occasional basis to meet workload demands such as major repairs or periodic financial reporting.

Also effective for 2009, the following employment benefits will generally not be required to be included in an employee’s income:

  • Loyalty points (i.e. frequent flyer points) collected on an employee’s personal credit card when traveling on employer reimbursed business trips or incurring other business related expenses (subject to certain conditions)
  • Allowances paid for travel within the municipality or metropolitan area that is primarily for the benefit of the employer

Starting in 2009, the rate at which the employment benefit is calculated for mileage reimbursed between home and work will be reduced from the general rate1 to the operating benefit rate of $0.24 cents per kilometre where:

  • the motor vehicle is specifically designed or suited for the employer’s business or trade, and is essential for the performance of the employee’s duties;
  • the motor vehicle is not defined as an automobile pursuant to the Income Tax Act;
  • the vehicle has not been used for personal use other than commuting between home and work; and
  • there are genuine business reasons for requiring the employee to take the motor vehicle home at night.

1Currently, the employment benefit is generally calculated at $0.52 cents per kilometre for the first 5,000 kilometres driven and $0.46 cents for each additional kilometre.


TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.

The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.

Employees Profit Sharing Plans

“EPSP’s do not work in all situations.”

There have been a number of recent publications stating that Employees Profit Sharing Plans (“EPSP’s”) are a good way to avoid paying Canada Pension Plan payments relating to salaries.

Section 144 of the Income Tax Act states that the payments to an EPSP must be computed by reference to an employer’s profits from the employer’s business. As well, the trustee is required to annually allocate the contributions received to the beneficiaries of the trust. The CRA has recently reviewed a number of EPSP’s and has raised some concerns.

There are a number of situations where the only beneficiary of the trust is the shareholder/manager of the company. The CRA is challenging these situations. The CRA’s view is that these plans are improperly administered for reasons such as those listed below:

  • The CRA does not consider an EPSP established for a sole beneficiary a valid plan because the term “Employees Profit Sharing Plan” (as defined in section 144) is in the plural. Therefore, the CRA believes that there needs to be more than one employee.
  • In some cases, the shareholder/manager is receiving no wages, but is instead receiving a single payment into the EPSP. The CRA’s view is that the EPSP is established for employees, and employees are expected to receive remuneration/wages. Where the shareholder/manager is not taking wages, then the CRA takes the position that the shareholder/manager is receiving the funds into the EPSP in the capacity as a shareholder as opposed to an employee. Only payments for employees can be paid into an EPSP.
  • The CRA expects that the salaries and wages paid to employees will be reasonable. The CRA defines reasonable as what an arm’s length employee would have reasonably expected to be paid for those services. Where a shareholder/manager receives a large one-time payment, the CRA is challenging the reasonability of these payments. This is in conflict with their general policy of allowing large salary/bonus payments to an active shareholder/manager.

Based on the above comments, the CRA is reassessing corporations for CPP and related interest.

This appears to be a “project” that the CRA has undertaken. Careful review should be made of all EPSP’s to ensure that they meet the necessary tests.


TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.

The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.

Employee Benefits

“Free Meals and Gifts.”

There was a recent case (McGoldrick), which dealt with employee benefits. The taxpayer worked at Casino Rama, which provided him with one free meal per shift along with other perks such as free entertainment events and free hams and turkeys on holidays. The employer provided one meal per shift at no charge to employees at a café. Employees were generally not allowed to bring food onto the premises for sanitation reasons and Casino Rama’s location made it impractical to eat offsite. Moreover, employees were not allowed to leave the premises during shifts without permission. A company representative testified that the provision of meals was for the employer’s benefit as it enhanced the attractiveness of the casino. As an aside, the taxpayer stated that he did not like eating at the café but because there was no alternative he ate there on most days.

Casino Rama included a taxable benefit to the taxpayer for the cost of the meals. The taxpayer argued that the provision of free meals was essentially a reimbursement for depriving him of his right to bring food to work.

The judge stated that the courts have attempted to recognize that where something has been 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. The judge stated in this case that because there was no reimbursement for expenses that this case was different from those where the reimbursement was to make the taxpayer whole. He then concluded that the taxable benefit was properly calculated and should be included in the taxpayer’s income.

This is an important lesson in those situations where employees are provided things at no cost. Where food is provided to employees on a reimbursable basis, it would appear that there is a strong argument that this is not a taxable benefit. Where, however, food or other items are being provided at no cost to the employee where there is a benefit to the employee, it appears that the courts feel that there is a taxable benefit to the employee.


TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.

The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.