21 October 2004 External T.I. 2004-0081881E5 - Determination of Insurable Earnings

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.

Principal Issues: Whether the taxable benefit arising to an employee from meals provided free of charge by the restaurant employer to the employee during their work shift would constitute insurable earnings for purposes of Employment Insurance.

Position: Final determination to be made by the CPP/EI Eligibility Division of the Revenue Collections Branch at the relevant Tax Services Office, however, it is our understanding that such a benefit would generally not be found to constitute insurable earnings.

Reasons: The CPP/EI Eligibility Division is the area authorized to make such determinations in accordance with section 90 of the Employment Insurance Act. Informal discussion with personnel from the above Division.

2004-008188
XXXXXXXXXX A.A. Cameron
(613) 347-1361
October 21, 2004

Dear XXXXXXXXXX:

We are writing in response to your facsimile of June 17, 2004 wherein you raised, essentially, the following three questions:

i) Whether an amount in respect of meals provided free of charge by a restaurant employer to an employee would be included in the "insurable earnings" of the employee as determined under the Insurable Earnings and Collection of Premium Regulations to the Employment Insurance Act.

ii) Whether the amount of "tips" should be included at line 101 or at line 104 on the "T1 General" income tax return, with the legal basis therefor.

iii) If it is found that an employer did not make sufficient deductions from wages and benefits received by an employee with respect to income tax, Canada Pension Plan and Employment Insurance, what amount is the employee required to pay, with the legal basis therefor.

Our Comments

We will provide our comments with respect to your questions in the same order in which those questions appear above:

i) The CPP/EI Eligibility Division of the Revenue Collection Branch at your local Tax Services Office is the area that has the authority, under section 90 of the Employment Insurance Act, to make a ruling determining whether amounts are insurable earnings. We understand, from informal discussions with personnel from the CPP/EI Eligibility Division, that meals provided free of charge by a restaurant to an employee thereof during the employee's work shift would generally be considered to be analogous to subsidized meals provided by an employer in an employee dining room or cafeteria. As such, it is also our understanding that the provision of such meals would generally not be considered to give rise to "insurable earnings", i.e., the provision of such meals would generally not be considered to constitute "board" for purposes of the Insurable Earnings and Collection of Premium Regulations to the Employment Insurance Act. However, these are general comments only with the authority to make a final determination resting, as noted above, with the Vancouver Island Tax Services Office to which we understand you have submitted a request for a ruling with regard to your specific situation.

ii) The amount of gratuities (i.e. tips) received by an individual in a year are included in the computation of the individual's income from an office or employment under subsection 5(1) of the Income Tax Act (the "Act"). Where an individual has tax payable under Part I of the Act for a particular taxation year, subsection 150(1) of the Act requires the filing of "a return of income that is in prescribed form and that contains prescribed information" for that taxation year. Pursuant to subsection 248(1) of the Act, the word "prescribed" means, in the case of a form, the information to be given on the form authorized by the Minister of National Revenue. The form so authorized for the making of a return of income by an individual is the "T1" form. In accordance with the 2003 "General Income Tax and Benefit Guide", tips received through employment which are included on a "T4" slip ("Statement of Remuneration Paid") issued by an employer are to be included on line 101 of the T1 return ("Employment income") while tips received through employment which are not included on a T4 slip are to be included on line 104 of the T1 return ("Other employment income").

iii) Under subsection 156.1(4) of the Act, every individual is required, on or before the individual's "balance-due day" for each taxation year (generally April 30 of the following taxation year), to pay to the Receiver General in respect of the year the amount, if any, by which the individual's tax payable under Part I of the Act for the year exceeds the total, essentially, of all amounts withheld on account of such tax for the year from wages or other payments received by the individual in the year and all other amounts paid to the Receiver General on or before the above day on account of such tax payable. As such, where an employer has not withheld sufficient income tax deductions from an employee for a particular taxation year, such excess of "tax payable" over the "amounts withheld or paid" for that taxation year would have to be paid by the employee to the Receiver General as noted above.

Subsection 82(4) of the Employment Insurance Act provides, subject to certain limited exceptions, that:

...an employer who fails to deduct and remit an amount from the remuneration of an insured person as and when required under subsection (1) is liable to pay to Her Majesty the whole amount that should have been deducted and remitted from the time it should have been deducted.

As noted on page 21 of the T4001 Employers' Guide - Payroll Deductions (Basic Information) an employer who fails to withhold the required amount of any employee's premium is entitled to recover an amount not exceeding that undeducted premium from a subsequent payment of remuneration to the employee. However, the employer cannot recover any such amount that has been outstanding for more than 12 months. This entitlement is set out in subsection 82(6) of the Employment Insurance Act.

Subsections 21(2) and 21(4) of the Canada Pension Plan contain similar provisions regarding an employer's failure to deduct required amounts from an employee's remuneration and the employer's entitlement to recover such amount from future payments to the employee.

These comments are provided in accordance with the practice described in paragraph 22 of Information Circular 70-6R5, dated May 17, 2002.

We trust that these comments will be of assistance.

for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Planning Branch