15 May 2000 External T.I. 2000-0005905 - SHIFT EXCHANGE OR PAYMENT FOR SERVICES

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Tax treatment of: 1. cash payment and payment in kind from one employee to another re shift worked for payor 2. Exchange of work shifts

Position: 1. Amount of cash or payment in kind received to be included in income 2. No tax consequence

Reasons: 1. Amount received for services provided 2. A straight exchange -

		2000-000590
XXXXXXXXXX 	M. Shea-DesRosiers
(613) 957-8953
May 15, 2000

Dear XXXXXXXXXX:

This is in reply to your letter of February 2, 2000, wherein you requested our opinion concerning the tax treatment with respect to the following situation:

At your place of employment, it is common practice to exchange shifts, where upon an employee (Mr. A) having the day off would work for another employee (Mr. Z) who would like to have the day off. Mr. Z, who was originally scheduled to work, would still receive his day's pay from the employer with tax deducted and will receive a T-4 at the end of the year which includes this amount. Mr. Z may either switch a day off with Mr. A, the employee who replaced him, or make a cash payment or payment in kind to Mr. A depending upon the agreement made between them.

You are concerned with the tax consequences of these practices including whether amounts received should be included in Mr. A's income, whether Mr. Z can deduct any payments made and whether records need to be maintained.

Our comments

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling submitted in the manner set out in Information Circular 70-6R3, dated December 30, 1996. Where the particular transactions are completed, the enquiry should be addressed to the relevant Tax Services Office. However, we are prepared to offer the following general comments which may be of assistance to you.

In our view, in the above example, the amount of cash received by Mr. A from Mr. Z, for doing Mr. Z's work, would have to be included in Mr. A's income. The fact that Mr. Z pays income tax on the employment income he receives from the employer for that same day's work, does not alter the fact that Mr. A must include the amount he receives from Mr. Z in his income. If Mr. Z were to pay Mr. A in kind, such as with chicken, then the value of the consideration being given, that is the chicken, would have to be determined. While the precise value may sometimes be difficult to determine, in an arm's length arrangement involving services, it should equal the value of the services provided. In this instance, it is the value of Mr. A's day's work. The Income Tax Act does not provide for a deduction from Mr. Z's employment income for the amount he pays to Mr. A.

If instead of receiving cash or a payment in kind, Mr. A and Mr. Z just exchanged work shifts, in our view, no additional reporting of income is required. T4s issued by the employer to both Mr. A and Mr. Z will accurately reflect the employment income each received for each of their day's work.

Accurate records should be kept of the days worked for, or switched with, a co-worker and the amounts received.

We trust our comments will be of assistance to you. If you have any concerns pertaining to a particular assessment, you should contact your local tax services office.

Yours truly,

Roberta Albert, CA
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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