It has been a confusing week for employers following tax guidance from the Canada Revenue Agency aimed at helping them interpret their tax obligations around employee discounts.

While initial reports suggested the government would be taxing employee discounts, a spokesperson for National Revenue Minister Diane Lebouthillier said Wednesday afternoon the government was pulling back the new language pending further review and consultation.

The new language stated that when someone receives a discount on merchandise due to their employment, the “value of the discount is generally included in the employee’s income.”

The guidance provided the following example: Employees receive a large discount that’s not available to the general public to buy software for personal use from their employer’s supplier. The difference between the price paid and the fair market value of the software should count as income.

Read: When is an employee benefit taxable?

The same goes for cash rebates an employer might pay after an in-house purchase or any kind of award given by a third-party supplier in connection with the person’s employment.

The language failed to make clear who will be responsible for recording those amounts: the employer or employee.

The guidance created confusion for employers as it appeared to suggest employee discounts could be off the books as long as they had been available to the general public at some point during the year, says Karl Littler, vice-president of public affairs of the Retail Council of Canada.

Further complicating matters, the CRA had mentioned there wouldn’t be any enforcement of the rules, says Littler. “It’s not clear what they’re trying to do,” says Littler, noting the administrative burdens of complying with the guidance.

The previous guidance language on the subject, he says, denoted that employee discounts were normally not taxable save for a few exceptional circumstances, such as employers selling employees items below cost.

Read: Tax proposal could add complexity to GST/HST rules for pension plans

Lebouthillier’s office has since maintained the CRA had circulated the guidance without the approval of her office. The office is “deeply disappointed that the agency posted something that has been misinterpreted like this,” Lebouthillier said in a statement. That statement also stressed that “we are not targeting individuals working in retail.”

As confusion continues about what the government will ultimately do, should employee discounts be taxable? Have your say in our latest weekly poll.

Last week’s poll asked about the best approach to national pharmacare given the significant estimated cost savings to cover a more restricted list of drugs. Most respondents (43 per cent) said Canada should implement a national pharmacare program given the potential $4.2 billion in savings. Another 34 per cent of respondents said governments should allow private payers to access the savings they currently enjoy through the pan-Canadian Pharmaceutical Alliance. And even fewer (23 per cent) said the government and private payers have the tools to manage drug costs through existing frameworks.






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Shame on the CRA – namely Trudeau for even thinking of taxing employee discounts. The majority of employee discounts are in retail and these are lower income earners, how about taxing the huge corporations that executives that can afford it. As usual it’s always the middle income and lower income earners that pay for the rich, wake up Canada.

Thursday, October 12 at 12:26 pm | Reply

Joe Nunes:

It just shows how getting caught up in the details and losing sight of the bigger picture is easy to do. As Judy points out, the whole movement to increase the minimum wage is an effort to help the same people that this policy would mostly hurt.

But its always been a rule that if my firm provides a taxable benefit to its employees we need to recognize it – how and where do you draw the line? CRA is trying to create a level playing field among all.

Sunday, October 15 at 9:28 pm | Reply

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