Principal Issues: [TaxInterpretations translation] Where an employer reimburses physical activity expenses incurred by its employees, is there a taxable benefit to be included in computing the income of the employees?
Position: A question of fact that can only be answered in the light of all the relevant circumstances of a given situation.
Reasons: Generally, we do not consider the payment or reimbursement of fees for physical activities to be principally for the employer's benefit when the employee's physical activities provide only an indirect benefit to the employer. This is the case where the employee's health improves as a result of the physical activities resulting in an improvement in the performance of the employee's duties (for example, the employee is sick less often). In such a case, the CRA considers that the employee principally benefits from the payment or reimbursement and receives a taxable benefit for the purposes of paragraph 6(1)(a).
XXXXXXXXXX 2009-034385 Danielle Bouffard March 4, 2010
Dear Sir,
Subject: Recreational Facilities and Club Dues
This is in response to your letter of October 2, 2009, in which you requested our opinion regarding one of the positions described in the Employers' Guide (T4130) Taxable Benefits and Allowances (the "T4130 Guide") relating to recreational facilities and club dues.
Unless otherwise indicated, all legislative references herein are to the provisions of the Income Tax Act (the "Act").
You described a situation where XXXXXXXXXX is responsible for processing XXXXXXXXXX claims, including the reimbursement of recreational facility fees of employees.
XXXXXXXXXX treats as a taxable benefit any reimbursements to employees for physical activity membership fees and fees for the use of recreational facilities for the purpose of engaging in physical activities that they have incurred ("fitness fees"). Reimbursement is generally a percentage of the expenses incurred by the employee up to a certain amount per person per year. It is the employee who pays for the membership, holds the membership and signs some form of contract with the company providing the facilities. Some of the employees have alleged that the employer benefits. Chapter 3 of Guide 4130 under the heading "Recreational facilities and club dues" states that the use of a recreational facility or club does not result in a taxable benefit for an employee where, inter alia, it can be clearly demonstrated that membership in a club or recreational facility is principally for the benefit of the employer rather than the employees.
Your Question
Where an employer reimburses physical activity expenses incurred by its employees, is there a taxable benefit to be included in computing the income of the employees?
Our Comments
It appears to us that the situation described in your letter and summarized below could constitute an actual situation involving taxpayers. As explained in Information Circular 70-6R5, it is not the practice of this Directorate to provide comments on proposed transactions involving specific taxpayers otherwise than in the form of an advance income tax ruling. If your situation involved specific taxpayers and one or more completed transactions, you should submit all relevant facts and documentation to the appropriate Tax Services Office for its opinion. However, we can offer the following general comments that may be helpful.
Paragraph 6(1)(a) provides, among other things, that the value of any benefits received or enjoyed by the taxpayer in the year in respect of, in the course of, or by virtue of an office or employment are to be included in computing the taxpayer's income except for certain benefits referred to in subparagraphs 6(1)(a)(i) to (v).
The provision of property to or reimbursement of an expense of an employee by the employee’s employer may give rise to a taxable benefit to be included in the employee's income if it results in an economic benefit or advantage to the employee or if it relates to a personal expense of the employee.
As noted in paragraph 12 of Interpretation Bulletin IT-148R3 Recreational Property and Club Memberships, generally, the payment or reimbursement of club dues or membership fees by an employer would be considered to be a taxable benefit to the employee under paragraph 6(1)(a) unless such payment or reimbursement is primarily for the benefit of the employer. Whether the economic benefit resulting from the reimbursement or payment of the fitness fees is primarily to the advantage of the employer or to the advantage of the employee is a question of fact that can only be determined after a review of all the facts surrounding a particular situation. In addition, as discussed in paragraph 12 of IT-148R3, the onus is on the employer and the employee to establish that membership in a facility is principally (usually more than 50%) to the employer's advantage.
Generally, we do not consider the payment or reimbursement of club dues or membership fees to be principally for the benefit of the employer where the employee's participation in physical activities provides only an indirect benefit to the employer. This is the case when the employee's health improves as a result of the physical activities resulting in an improvement in the employee's job performance (for example, the employee is sick less often). In such a case, the CRA considers that the employee primarily benefits from the payment or reimbursement and receives a taxable benefit for the purposes of paragraph 6(1)(a).
However, it is possible that the nature of the duties of a particular employment and/or the particular terms of an employment contract may require an employee to meet and maintain a certain level of physical fitness. In such a case, if it can be demonstrated that a specialized fitness course, training for a specific sport or membership in a fitness centre will enable the employee to satisfy the specific terms and conditions of employment, it is possible that the payment or reimbursement of club dues or memberships will be principally for the benefit of the employer. If this is the case, the payment or reimbursement by an employer of fees for physical activities would not result in a taxable benefit to the employee under paragraph 6(1)(a).
Taking into account the limited information described in the three programs you submitted to us, it appears to us that the employee benefits principally from the payment or reimbursement by the employee’s employer of the cost of physical activity, and therefore such payment or reimbursement by the employer is a taxable benefit to the employee for the purposes of paragraph 6(1)(a).
We hope that these comments are of assistance.
Best regards,
François Bordeleau, Advocate
Manager
Business and Partnerships Section
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.