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I live in the UK so this doesn’t affect me personally, but as I adore all things tax, this struck me as interesting.
Seems the CRA (Canada Revenue Agency) has issued a new interpretation of the Income Tax Act with regards to employees receiving sales discounts from employers (retail shops, restaurants, etc) and whether or not those discounts should be taxed as part of regular employment income. Up until this point those discounts were not collated, reported and the tax deducted at source. The ITA (Income Tax Act) is rather unwieldy and you need to be a super specialist to interpret it. MP Wayne Easter has stated in the HP post that the CRA should rethink this new interpretation. I’m sorry to disillusion Mr Easter or anyone else – but any challenges to CRA’s interpretation of the ITA has to go through the Tax Court and the Supreme Court of Canada also hears tax cases – when sent up from the Federal Court of Appeal. This is usually why you need either a Tax Lawyer or an accountant (usually one from one of the Big 4) on your side when fighting the CRA.
So, employee discounts. I have experienced these myself, when I was but a baby accountant, learning the tricks of the trade and earning just a bit over minimum wage. I worked for Sears Canada for 3yrs, in their Finance Department. There I did get a 15% discount on any items I purchased in the Sears Canada stores. Whenever I would get the discount I would present my employee card and that would get swiped. This argument that keeping track of which discounts an employee gets is a red herring – most employees have an employee number which can easily be punched into the POS system at the point of purchase. Run the reports from the POS and viola! you have your listing of the discounts the employees have gotten.
The Canadian Income Tax Act is structured in such a way that ALL employees who gain any form of economic benefit through work must be taxed on that economic benefit (i.e., wages). This also includes any benefits received in kind, such as private dental insurance, payment of any membership dues (CPA-CGA in my case) and whatnot. Banks for ages have been forced to tax their employees on the reduced interest rates they pay on any personal loans or mortgages they may have received as part of their renumeration package with the bank.
Do I think it fair to tax these benefits? Yes. By the very notion of the ITA those discounts are an economic benefit. I know some would argue that in some retail shops the employees are required to wear the shop clothes whilst working. In that case, those costs can be claimed as part of a “uniform” as the terms of employment will specifically state this requirement. And this negates the argument of “what of those retail employees who are forced to purchase the shop’s clothes”.
When I worked for Pfizer we had the benefit of the Employee Store, which opened twice a week. So we were able to get OTC products (such as visine, lubriderm, nicorette, purel etc) cheaply. BUT, Pfizer did not discount these products for us. They sold them to us for exactly the same amount that they would sell to Shopper’s Drugmart, Sears, Rexall etc. So there was no dip in the company’s profits, so to speak, to provide a discount to the employees. It’s just the middle man was cut out of the equation. And this fits in perfectly with the new re-interpretation of the ITA.
Now, thinking from the Treasury/CRA point of view, I have a quick & dirty table explaining the effects of providing an employee discount to staff and the effect it has on tax revenues.
As you can see, when a shop sells to the general public, the tax revenues collected for CRA are significantly higher than providing a discount to the employee under the current system. Yes, in essence, this is a cash grab by CRA to plump up the tax coffers. But if we turn back to what I mentioned earlier – we as employees get taxed on the economic gain from employment (salaries/wages, benefits etc). CRA’s interpretation is looking at what are employee benefits. If you want this changed, the ITA needs to be updated via legislation – meaning Parliament has to make that amendment.
As for those who argue about the free coffee, tea etc they get in the employer’s canteen/kitchenette etc. Under current legislation the employer can only claim half the cost of providing those freebies when filing their corporate tax return. So if they paid $100 for the tea/coffee they can only claim $50 as a business expense – so effectively they need to pay an extra (at 28%) $14.00 to CRA.
So I would suggest before jumping on the bandwagon and flailing the fists that this is unfair, maybe look at the implications on the tax coffers. We all whine that the government keeps cutting benefits & funding, but the coffers need to be more robust so that those cuts don’t happen.
Opinionated Bean 
Bill Malcolm said:
Right. So selling off stale doughnuts to employees at half price thus increasing their income but them not reporting it as income is ripping off the CRA, even if otherwise the food is tossed out at a total loss to the business, with no marginal revenue accruing at all. Cops get free coffee past its best. We’d better make sure they add some bucks to their income for the benefit, just to be fair.
This silliness happens all the time with respect to perfectly good food discarded by supermarkets and Walmart, often before its best sell-by date. CBC TV Marketplace has shown the egregious waste often involved, when the food could simply have been donated to a food bank or soup kitchen. Are you suggesting that if they gave it away to employees rather than just chucking it out, the employee should add the retail price to their income? You know, just to be fair to society at large?
I’ve seen hard goods that simply didn’t sell depreciated to zero value over a period of years. If an employee paid something, anything, for such a real good, the employer whistles a happy tune. But, golly gee whiz, let’s tax the employee on the “benefit”, why not.
It’s long been my feeling that it’s expensive to be poor. It’s like when the restaurant running a buffet chucks out food at day’s end. Is there any reasonable person who objects to the waiters and kitchen staff having a bite to eat of the remainder without say $15.95 (plus GST and provincial taxes lost, oh dear) being added to their income? Apparently yes there is — po-faced accountants like you and the relentlessly honest types running the CRA, who seem to delight at swanning around at receptions run by major accounting firms eating and drinking like there’s no tomorrow. Let’s add that bennie to their incomes and see how they like it!
Meanwhile, the very well-off and their enablers dream up ways for them to become fake citizens of the Isle of Man or the Cayman Islands and hoard income the CRA cannot even see to tax. It’s cheap to be rich, with all the scurrying enabling bootlickers earning less for their “services” than the tax their clients avoided. Oh yes. So fair.
Of course, I get the point that employees who get a pair of jeans at a further 20% off the sale price are gaming the system like hardened criminals if they don’t report the benefit as income. Just like waitpersons who don’t report all their cash tips. Like I’ve seen them all driving BMWs with the ill-gotten loot.
A business doesn’t need the heavy hand of tax authorities determining its selling price on any item, thanks all the same, and crying foul if they lose a few bucks tax. No, that business should have sold the item at a price to maximize CRA’s tax take! What is this – Big Brother land? Many good longstanding customers at hard goods stores I’m familiar with often get better than sale prices anyway. Better make sure they add that bennie to their income!
Load of utter tosh, mate. If there are 2,000,000 retail sector workers who can afford to actually buy the goods their store sells them at a discount, and the aggregate is $500 apiece annually, that’s taxes on a billion going missing. $280,000,000 by your account, assuming all the businesses actually make a net profit – no, CRA will make up something by the 17% basic income tax rate employees face. That is peanuts compared to the supposed $4 or $5 billion the rich are rumoured to not pay that they should. Hard to nail those people, but store ID swipe cards for the lowly minimum wage worker means it’s easy for CRA to nail the working poor. As usual.
MPs in Ottawa get subsidized food at the parliamentary cafeterias. Visit and see the cheapo prices our rulers get! Better drag out a calculator and work out the subsidized benefits! Then we’d see this CRA over-reach ridiculousness disappear in five minutes. Being the tax-collecting authority shouldn’t mean that the grey matter and commonsense supposedly lodged between the ears of their employees is missing in action, replaced by an intense sucking vacuum. It should be a matter of reasonable interpretation, not some blanket bureaucratic policy idiocy to “follow the book”.
If there was tax-dodging before, this newfound CRA determination to nail mainly low or minimum wage employees to the wall for merely existing and clogging up the works will only exacerbate it, you can be sure. And no, we don’t need your opinion. You’re one of the plods who cannot see beyond their nose.
opinionatedbean said:
As I mentioned in my post, if you bothered to read to the end, is that if people want changes to what CRA is doing then it can only be done via the Legislature. Lobby your MP. If enough people do so then the ITA can be updated and this won’t be an issue. What is happening with CRA’s pronouncement is that they are actually following the letter of the law – with regards to how the Income Tax Act is written.
It’s not the employees who report the benefit – it’s their employers. Check your T4 slip and if there’s a Box 40 that’s where your taxable benefits are listed. And your employer would have deducted the tax at source – so instead of one big hit at the end of the year, it’s over the number pay periods you have (52, 26, 24 or 12).
If the employer is providing a meal to the employee, that is a taxable benefit. If that meal is exactly the same as what a customer would yet, then yes, that is a benefit of £15.95. If it’s a separate meal, from what a customer would get and is specifically cooked for the employees (like a canteen) then it gets treated differently as there are no profits on it – and T&E for ALL employees (like a christmas party) are not a taxable benefit. There are shades. You should read the ITA, if you can stomach it, before spouting how horrible I am as an accountant and all of those filthy shitheads like myself who suck upon the souls of those living at the poverty line.