Principal Issues: Whether assistance provided by a company to its employees who live in Slake Lake (an area recently decimated by wildfires) to cover extra costs for living expenses could be treated as non-taxable to those employees.
Position: The assistance does not have to be included in the taxable income of the employees however it should be noted that the employer will not be entitled to a deduction since the payments are not outlays or expenses made or incurred for the purpose of gaining of producing income from the business.
Reasons: In the circumstances described, the financial assistance provided by the employer is being made for philanthropic reasons and not as a payment to employees for services performed. Therefore we do not consider the payments to have been received by virtue of an office or employment.
XXXXXXXXXX
Dear Colleague:
Thank you for your correspondence concerning a company that wants to provide non-taxable assistance to its employees who live in Slave Lake, Alberta, an area recently decimated by wildfires. I apologize for the delay in replying.
You mention that the company is providing XXXXXXXXXX to its employees to cover extra costs for living expenses. Payments to employees to cover personal expenses are normally considered taxable benefits to employees under paragraph 6(1)(a) of the Income Tax Act. The company is asking that the payments not be included in the taxable income of its employees. In return, the company is offering to contribute to Slave Lake to help rebuild the community with an amount equivalent to an estimate of what the employees would have paid in income tax on these payments. You are asking if the Canada Revenue Agency (CRA) can accommodate this request.
Under paragraph 6(1)(a) of the Act, the value of benefits of any kind received or enjoyed by a taxpayer in a tax year in respect of, in the course of, or by virtue of, an office or employment are included when calculating the income of a taxpayer for the respective tax year. In the circumstances described, it seems that the financial assistance provided by the employer is being made for philanthropic reasons and not as a payment to employees for services performed. As such, the CRA will not consider that the payments were received by virtue of an office or employment, and the respective amounts do not need to be included in the taxable income of the employees.
Please note that in such circumstances, the employer will not be entitled to a deduction under section 110.1 of the Act when calculating its taxable income, since the payments are not gifts made to a registered charity. Further, paragraph 18(1)(a) of the Act does not permit the employer to make a deduction when calculating its general business income since the payments will not be considered outlays or expenses made or incurred for the purpose of gaining or producing income from the business.
I trust that the information I have provided is helpful.
Yours sincerely,
Gail Shea, P.C., M.P.
Andrea Boyle
(613) 952-8808
2011-040975