Principal Issues: [TaxInterpretations translation] What approach should the Canada Revenue Agency take to determine if a firefighter is a volunteer firefighter within the meaning of subsection 81(4) of the Income Tax Act?
Position: The Canada Revenue Agency will generally rely on the determination of a firefighter's status by the firefighter’s employer, being a government, municipality or other jurisdiction.
Reasons: Interpretation of subsection 81(4) of the Income Tax Act. The term "volunteer firefighter" also has a special meaning under the various provincial statutes.
XXXXXXXXXX 2008-026794 Nancy Turgeon, CGA July 7, 2009
Dear Sir,
Subject: Exemption for the first $1,000 of income paid to volunteer firefighters
This is in response to numerous requests received within the Canada Revenue Agency seeking our opinion as to the eligibility of certain volunteer firefighters for the exemption referred to above.
Unless otherwise indicated, all statutory references herein are to the provisions of the Income Tax Act (the "Act").
Since the introduction of this exemption in the Act, several municipalities and other public authorities have examined the status of firefighters employed by them and the applicability of the exemption to the income that these workers earn. We hope that the comments in this letter will assist parties in making an informed decision on this issue.
The Act does not provide for a definition of the word "volunteer". It is therefore necessary to refer to the ordinary meaning of the word. The Larousse dictionary defines a volunteer as a person who does something without being paid, without being required to do so [TaxInterpretations translation]. In this situation, the volunteer gets involved willingly and for the satisfaction of serving his or her community. As a result, it is quite common for a volunteer to be neither an employee nor a contractor serving an organization.
However, many tasks undertaken today by volunteers are no longer performed gratuitously. Some volunteers receive modest sums of money, gift certificates or goods and/or services in consideration for the services rendered.
Nevertheless, this consideration does not adequately reflect the amount of work performed nor the quality of the services provided. Furthermore, the consideration paid is not by itself sufficient to ensure the provision of services by the volunteers and does not reflect the fair market value of the services rendered. In such situations, these amounts are not taxable.
It is necessary to examine other situations involving volunteers. A ski resort often gives a seasonal pass to an individual who joins a ski patrol in order to keep a watchful eye on the slopes. This individual is a volunteer. Also, an individual who is granted access to a golf course (free green fees) in consideration for patrolling the course in order to ensure that the players respect the club's rules and regulations is also a volunteer.
However, where the amount of remuneration paid to volunteers is sufficient to influence their involvement or participation, it is very likely that the remuneration is taxable as employment income or income from a business.
As a result, some of them may be considered employees or independent contractors serving the organization or community. The payer must, in light of the established rules and relevant facts, determine whether there is an employer-employee relationship or rather a business relationship between the parties. Thus, if there is an employer-employee relationship, the remuneration and fringe benefits enjoyed by the volunteers are taxable under section 6.
For others, if there turns out to be a business relationship, the income is business income in the hands of the person receiving it and is taxable under section 9. Consequently, the income received can be subject to different source deductions provided for in the Act or withholdings that businesses are required to make.
Subsection 81(4) allows an individual, employed by a government, municipality or public authority, to exclude from the computation of the individual’s income the lesser of $1000 and the total of amounts received in the year for the performance, as a volunteer, of the individual's duties as an ambulance technician, a firefighter or a person who assists in the search and rescue of individuals or in other emergency situations.
If the Minister of National Revenue so demands, the employer must certify in writing that the individual was in the year a person described above and that the individual was at no time in the year employed or otherwise engaged by the employer, otherwise than as a volunteer, in connection with the performance of any of the duties referred to above.
The volunteer firefighters we are referring to are not necessarily volunteers in the sense established above. Had this been the case, the $1,000 exemption would lose all of its meaning as it only applies to taxable income. It is not sufficient to combine the words firefighter and volunteer in order to come up with an adequate definition of this expression.
At the outset, most volunteer firefighters were men and women from small communities that did not have structured fire departments. The municipalities hired people, gave basic training, and established schedules according to each’s availability. When there was a fire, these volunteers were contacted according to an established schedule. No compensation or remuneration was paid. It was a matter of service and community involvement.
With fewer and fewer volunteers, the municipalities decided to compensate the volunteers for their availability, periods of response, travels, training, implications and expenses incurred in these volunteer activities.
Today, for all practical purposes, no firefighter can be labelled as a "volunteer" in the true sense of the word, i.e. of his or her own free will. Furthermore, the compensation that they receive in exchange for their services highly suggests that they are employees.
Volunteer firefighters can receive substantial amounts of money if they are frequently asked to serve their community. It is quite frequent to see some of them making in excess of $1,000 per year. But, they are still "volunteer firefighters" and the exemption under subsection 81(4) is specifically for them.
In order to better understand the situation with volunteer firefighters, it is necessary to look elsewhere. A number of provincial laws and regulations have a daily impact on employees' life such as legislation on labour standards or on occupational health and safety. We find in those legislation and regulations definitions for "volunteer firefighters" that are quite different that the ones for regular or part-time firefighters. The Fire Protection and Prevention Act, 1997 No. 2 of Ontario and Quebec's Guide du Recensement des mesures et des ressources municipales en sécurité incendie de 2001 each contain a definition of "volunteer firefighters". The CRA is of the opinion that we should base our understanding on who is a volunteer firefighter by reading the definitions established by such legislation and related publications. This approach allows some light to be shed on the meanings provincial government authorities accord to the expression as well as municipal or other public administrations.
We are convinced that municipalities and other public authorities are better able to determine the status of their employees. Paragraph 81(4)(b) states that this responsibility clearly falls on the shoulders of the municipality or public authority. It is clearly indicated that, at the request of the Minister of National Revenue, the municipality or public authority is to certify in writing that a given individual is a "volunteer” within the meaning of paragraph 81(4)(a). If there is an audit, the municipality or public administration could be asked to indicate clearly the circumstances that justified its decision to grant or not grant the exemption to an individual or a group of individuals.
If you need more information, please do not hesitate to contact us.
Best regards,
François Bordeleau, Advocate
Manager
Business and Partnerships Section
Income Tax Rulings Directorate.
ENDNOTES
1 Le Petit Larousse Illustré, Paris : Librairie Larousse; 1991. Bénévole; p. 129
2 1997, S.O. 1997, c. 4.