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Trudeau rules Outside taxing employee discounts

12 Oct 17
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Prime Minister Justin Trudeau is weighing on Revenue Canada’s fumbled strategy to tax employee reductions, taking to Twitter to flatly rule out any move by his administration.

The Prime Minister’s intervention comes on the heels of a disavowal on Tuesday by Revenue Minister Diane Lebouthillier’s office of moves from the Canada Revenue Agency to deal with employee reductions as a taxable benefit.

Even though the CRA said it will launch a new strategy for consultation, Mr. Trudeau said the outcome won’t be a resurrection of the tax proposal.

“Let me be blunt: ” We aren’t going to tax anyone’s employee discounts,” he wrote. “Minister @DiLebouthillier has requested the CRA to correct this.”

On Wednesday, the CRA eliminated an interpretation bulletin called a folio from its site after Canadian retailers warned it would have widespread consequences for the comparatively modest employee discounts which are a frequent benefit to workers throughout the country.

The record stated that employee discounts should “generally” be reported as income, meaning that they should be treated as a taxable benefit.

That contradicted another, longstanding guidebook for companies, which stated that “if you sell product to your worker at a reduction, the advantage he or she receives from this isn’t typically considered a taxable benefit” provided the merchandise isn’t sold below cost.

Ms. Lebouthillier’s office said on Tuesday it was “disappointed” by the CRA’s decision to pursue a new approach to the taxation of employee reductions and the agency was acting without ministerial approval.

On Wednesday, John Power, a spokesman for the ministry, said the CRA will be releasing a revised compilation and employers’ guide in the long run.

“Once the bureau completes their internal inspection of their documents, they will publish them for consultation with stakeholders,” he said.

Contrary to the debate on small-business rules, the Liberal government hasn’t outlined a rationale as to why the guidelines for employee discounts require an upgrade. Finance Minister Bill Morneau’s 2017 budget included a vague reference to employee benefits and allowances that said “certain tax measures allow some people to pay less than their fair share of taxes on these benefits. These steps are unfair and they lack a strong policy rationale{}”

The funding then recorded just two particular cases, pledging to remove a deduction for employee home-relocation loans, in addition to deductions available to a provincial and municipal politicians. It didn’t say that other worker benefits would become taxable.

The Retail Council of Canada first publicly raised its concerns over the CRA’s most current interpretation of employee reductions during a Sept. 27 appearance before the House of Commons finance committee.

The Globe and Mail spent several days seeking clarity from the CRA on the issue before publishing a story on Oct. 9.

Conservative finance critic Pierre Poilievre questions the Liberal assertion that Ms. Lebouthillier was disappointed and caught off guard by an issue that was raised in people with MPs almost two weeks before.

“Why didn’t the authorities immediately seize upon that information that came into the committee and cancel this interpretation at the moment?” he asked. “I believe the answer is they have signalled to CRA to go out and find money wherever they could. … That is why I don’t believe they responded until they suffered the backlash; before their telephone lines beginning light up in constituency offices and their email inboxes began to fill with angry waitresses and shop clerks and regular working-class wage earners.”

NDP revenue critic Pierre-Luc Dusseault said the Liberals claim to be going after the wealthy, but in practice they are targeting small-business owners and low-income employees.

“They’re mismanaging the entire problem of taxation,” he said. “Low-income earners do not have the capacity to defend themselves{}”

Tax experts say it appears the CRA’s activities are prompted by court rulings in 2010 and 2011 that relate to the definition of taxable benefits and how to figure out the fair-market value of benefits that are deemed taxable.

The CRA regularly updates its interpretation of taxable gains in response to court rulings and the line between what is or isn’t taxable isn’t always straightforward. As an example, an employee who receives free parking at work might need to declare that as a taxable benefit if the parking place is solely for their use and a fair-market value can be established. But a retail worker who parks in a huge mall parking lot isn’t deemed to have received a taxable benefit.

Courtesy: The Globe And Mail

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