7 November 2014 Internal T.I. 2014-0549861I7 - Fixed or ascertainable stipend or remuneration

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether an officer's unreimbursed expenses, which are related to performing the duties of the office, render his or her per diem rate not fixed or ascertainable under the definition of "office" in 248(1).

Position: No.

Reasons: See response.

November 7, 2014

CPP/EI Rulings Division Income Tax Rulings Directorate
Legislative Policy and Regulatory Business and Employment Division
Affairs Branch Kathryn McCarthy

Attention: Eric Gagnon 2014-054986

Fixed or ascertainable stipend or remuneration

We are writing in response to your e-mail of October 9, 2014, concerning whether part-time XXXXXXXXXX in XXXXXXXXXX ("XXXXXXXXXX") are considered to hold an office under the Income Tax Act ("Act"). More specifically, you enquired whether the XXXXXXXXXX' unreimbursed expenses, which are related to performing their duties, render the remuneration that they receive not fixed or ascertainable.

The XXXXXXXXXX are appointed by order in council and receive a fixed amount per file. The XXXXXXXXXX are generally XXXXXXXXXX, who have or had a professional practice or business. The XXXXXXXXXX are reimbursed for travel and meal expenses. However and more importantly, they incur other expenses that are not reimbursed. For example, they must provide their own tools (such as laptops and phones) and, in some cases, the XXXXXXXXXX also incur office and annual conference expenses. It is not clear whether the XXXXXXXXXX know, at the time they are appointed, that they may incur unreimbursed expenses in the course of performing their duties. If the XXXXXXXXXX know in advance about these expenses, it is your view that the remuneration can be considered fixed and ascertainable under the definition of "office" in subsection 248(1).

Our comments

Whether a particular individual earns income from an office or employment, or from a business, is a question of fact. The definition of "office" in subsection 248(1) reads, in part, as follows:

"…the position of an individual entitling the individual to a fixed or ascertainable stipend or remuneration….and any other office, the incumbent of which is…appointed in a representative capacity…and "officer" means a person holding such an office"

The definition of "employee" in subsection 248(1) includes an officer.

When an individual is appointed in a representative capacity (in this case, by an order in council) and a fixed or ascertainable honorarium or fee is paid to that individual, it is our view that such an amount is taxable as income from an office or employment under paragraph 6(1)(c) of the Act. This position is consistent with case law on the subject, which specifies that a legal entitlement to a per diem rate of remuneration established in advance is sufficiently "fixed or ascertainable" to meet the definition of an "office".

Further, case law has established that the words "fixed or ascertainable stipend or remuneration" in the definition of "office" refer to gross (not net) amounts. In particular, in Payette c. Ministre du Revenu national (footnote 1) (2002 CarswellNat 4668 (Employment Insurance)), the Tax Court of Canada ("TCC") reviewed the decisions in Guérin (1952 6 Tax ABC 77), MacKeen (1967 Tax ABC 374) and Merchant (1984 CTC 253) and held as follows:

"24. However, in commenting on the decision in Guerin (supra), Reed 1. [in Merchant] appears to assume that in that case the remuneration was not ascertainable mainly because of the expenses the appellant was obliged to incur. The Court does not agree with that position. The words "stipend" and "remuneration" mean gross income, not income net of expenses. This is clear from the wording of subsection 5(1) of the Income Tax Act…"

However, the final decision by the TCC in Payette that the stipend was not fixed or ascertainable was not because the expenses were incurred. The final decision in Payette was that the stipend was not ascertainable since it was not known how many times the individual would be called upon to sit or how many days or hours would be spent on the activity in a given year.

In 2004, the TCC also decided the Churchman v. R. case (2003-2137(IT)I), albeit in an informal procedure. In this case, a chairperson of a board received a per diem amount. The chairperson argued that she did not hold an "office" under her contract, but rather was an independent consultant so that the expenses she incurred while under contract were deductible. The chairperson was paid a per diem for the days she sat at an appeal hearing. In carrying out the required duties, the chairperson incurred expenses including home office expense and cell phone use, which were not reimbursed. The TCC in Churchman relied on the principles established in Payette that the words stipend and remuneration mean gross income, and not income net of expenses. The final decision in Churchman (again relying on the principles in Payette) was that the stipend was not ascertainable since the number of hearing days per year was not known in advance.

However, the final decisions of the TCC in Churchman and Payette were overridden in Ontario (2011 FCA 314) and the Real Estate Council (Alberta) (2012 FCA 121) by the Federal Court of Appeal ("FCA"). These FCA cases stand for the position that it is not required for the number of sittings to be known in advance, for an amount to be considered sufficiently fixed or ascertainable, for the position to be considered an office. These FCA cases opine that a legal entitlement to a per diem rate of remuneration established in advance is sufficiently fixed or ascertainable to meet the definition of "office".

Since "stipend and remuneration" are considered to refer to gross (not net) amounts under the definition of "office", unreimbursed expenses (whether or not the nature or quantum of the expenses is known in advance by the individual) are not considered when determining whether a particular amount is fixed or ascertainable. Consequently, it is our view that for the purposes of the Act, notwithstanding that the XXXXXXXXXX may incur unreimbursed expenses in the course of carrying out their XXXXXXXXXX duties, the XXXXXXXXXX are considered to receive a fixed or ascertainable stipend or remuneration and to hold an office.

We trust our comments will be of assistance to you.

Yours truly,

Nerill Thomas-Wilkinson, CPA, CA
Manager
Business and Employment Income Section
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1 The neutral citation for Payette is 2001-2476(EI), 2001-2477(EI), 2001-2478(EI), 2001-2480(EI), 2001-2481(EI), 2001-2482(EI), 2001-2484(EI), 2001-2486(EI), 2001-2487(EI), 2001-2488(EI).