| 921387 | |
| 19(1) | M. Eisner |
| (613) 957-2138 |
May 26, 1992
24(1) District Office DivisionBusiness and General Source Deductions Division
Incentives to Purchase or Lease Automobiles
This is in reply to your memorandum dated May 5, 1992 in which you asked us for our views on the tax consequences of payments made under the 24(1) With respect to the above situation, paragraph 2 of Interpretation Bulletin IT-470R "Employees' Fringe Benefits" indicates that benefits described therein have been classified as taxable benefits or as non-taxable privileges. This paragraph also states that "there may well be a point beyond which the "privilege" concept is no longer valid, i.e., the advantage to the employee is, in fact, a form of extra remuneration. Then the "fringe benefit" is viewed as a taxable benefit".
We have compared the payments in question to the discounts described in paragraph 27 of IT-470R which are considered to be non-taxable privileges. It is our view that payments that will be made under the Program are different in substance from non-taxable discounts in that, in the former situation, the employee is in receipt of a monetary payment while in the latter an employer is merely foregoing a portion of profit. In addition, paragraph 27 of IT-470R refers to the type of situation where an employer sells merchandise to its employees. This is not the case in the situation under consideration.
It is also apparent, from the information provided, that the individual purchaser of the automobile will receive these payments only by virtue of their status as employees of 24(1) (i.e., the individual would not be entitled to these payments if he were not employed at a participating employer). Accordingly, it is our view that both amounts that will be received by a 24(1) employee will be required to be included in his or her income under paragraph 6(1)(a) or subsection 5(1) of the Income Tax Act.
Furthermore, it is our view that the part of the incentive that will be paid directly or indirectly by 24(1) would be taxable under paragraph 6(1)(a) as a benefit received "in respect of, in the course of, or by virtue of an office or employment" for the purposes of that paragraph. The basis for this view is that the courts have interpreted the quoted phrase in a very broad manner (refer to the Supreme Court decision in the Queen v. Savage 83 DTC 5409 at page 5414). The decision of the Exchequer Court in Waffle v. MNR 68 DTC 5007 further supports the view that payments (or benefits) received from a third party (not the employer) when received by virtue of the employment should be taxed as part of his employment income.
J.A. Szeszycki
for Section ChiefPersonal and General SectionBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
cc: Source Deductions Division