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Liberal government tells CRA to back off plan to tax employee discounts

October 11, 2017 6:48 PM
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Liberal government tells CRA to back off plan to tax employee discounts

National Revenue Minister Diane Lebouthillier says government did not approve new tax

The national revenue minister is blaming bureaucrats at the Canada Revenue Agency for hatching a plan to tax employee discounts, backpedalling on a new interpretation of the tax code she says she never approved in the first place while instructing the agency to pull the plans from its website.

In a statement sent to CBC News, Diane Lebouthillier's press secretary said she is "deeply disappointed" employees at the tax collector issued a directive — or a "folio" — with new rules around how employee discounts on merchandise would be treated for tax purposes. The CRA had said on its website when an employee receives a discount on merchandise the value of the discount should be included in the employee's income at tax time.

"This document was not approved by the minister and we are deeply disappointed that the agency posted something that has been misinterpreted like this," John Power, a spokesperson for Lebouthillier, said in an emailed statement. "The agency issued a guidance document that does not reflect our government's intentions and the minister of national revenue has instructed officials to clarify the wording."

Shortly after the statement was sent out, the folio was pulled from the CRA's website. Power said the minister has instructed the agency to now review its interpretation of the tax code, and consult with stakeholders in the industry.

The government's backtrack comes amid a stunning backlash to the change from the Retail Council of Canada and thousands of the country's two million retail workers.

While the minister has called for a review, the tax collector is still expected to address taxation on employee discounts at a later date.

A 2011 tax court ruling found the CRA's guidance to employers on this matter was out of date and did not adequately conform to the Income Tax Act, which stipulates most employee benefits should be deemed taxable income.

In response, in its 2016 folio — a document written in plain language and disseminated to employers to help them interpret the tax code — the CRA said employers should start tracking employee discounts and report that as income on an employee's T4 (statement of remuneration paid) at tax time.

Under the guidelines presented, which have since been stripped from the CRA website, the difference between the "fair market value" of the merchandise purchased and what the employee paid is what would have to be claimed on a tax return. For example, if an employee buys an $80 sweater for $40, then the employee would have to claim the $40 difference as income.

The Retail Council of Canada first raised the issue with MPs at a House of Commons committee meeting at the end of September, putting the tax change on the public radar for the first time.


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