12 September 1995 External T.I. 9520365 - EMPLOYEE BENEFIT FROM FREE BANKING 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:

taxable benefit relating to the waiving of bank service charges in the case of employees

Position TAKEN:

the benefit is taxable

Reasons FOR POSITION TAKEN:

the situation is not analogous to retail industry employee discounts, subsidization of an employer cafeteria & the amount of the benefit is clearly established by way of the amount charged to customers

A. Humenuk
XXXXXXXXXX 952036

Attention: XXXXXXXXXX

September 12, 1995

Dear Sirs:

Re: Taxable Benefits to Employees

We are replying to your letter of July 19, 1995 concerning the taxation of employee benefits and the waiver of customary fees charged by the credit union in respect of services rendered.

You are proposing to waive the fees normally charged by your credit union in respect of banking services provided to your employees.

XXXXXXXXXX

All full time and permanent part time staff are eligible to take advantage of the offer. You have asked whether the provision of this service package to employees at no cost would give rise to a taxable benefit.

Paragraph 6(1)(a) of the Income Tax Act requires the value of benefits of any kind whatever, subject to the exceptions stated in that paragraph, which are received or enjoyed by the employee in the course of employment to be included in income. In some cases the value is easily measurable while in others it is more difficult to determine.

Clarification would appear to be in order in respect of the comments in Interpretation Bulletin IT-470R "Employees' Fringe Benefits" concerning merchandise discounts for employees. It is customary for retail businesses to offer all of their employees a small discount on all their purchases. As stated in the bulletin, any benefit the employee may derive from exercising such a privilege is not normally regarded as a taxable benefit. The reason for this is not that the discounted price is greater than the employer's cost but that it is questionable on any particular purchase whether the employee has in fact received a benefit because of the variations which can be found in the market price charged for retail goods.

Where an employer provides a cafeteria or other dining facility on the employer's premises, any contribution by the employer to the cost of running such a facility could be interpreted as a subsidization of the cost of meals so provided. On the other hand, the price of a meal in an eating establishment includes many factors and it may well be that the price charged for meals in an employer-provided cafeteria is the fair market value of that meal.

Recognizing the difficulty in establishing the value of any benefit provided to employees as a result of meals consumed in an employer-provided cafeteria, the Department has taken the position that no taxable benefit will accrue to employees in such a situation provided that a reasonable charge is made for such meals.

It is our view that the provision of banking services to employees at no charge is not analogous to the situations contemplated in paragraphs 27 and 28 of the bulletin. The value of a service provided by the credit union is the amount customarily charged by the credit union. Any reduction in that charge granted by reason of employment constitutes a taxable benefit to the employee receiving the service. The fact that most of the credit union's employees can take advantage of the offer is not relevant.

With respect, we cannot agree that there is no personal benefit to employees on the basis that the employees will be more knowledgable about the services offered by the credit union and thus better able to sell them. It is our view that, while an employee may be more motivated to sell a service which the employee has received at no cost, it is clear that the primary benefit of the free service accrues to the employee.

We trust our comments will be of assistance to you.

P.D. Fuoco
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch