24 June 1994 940101B - EMPLOYEE SERVICE AWARDS

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Where an employer provides an employee with a long term service award of jewellery, we previously indicated that the employee received a benefit for the purposes of paragraph 6(1)(a). With respect to the quantum of the benefit, we indicated that it would not be less than the expense incurred by the employer.

We have now been asked whether the jewellery could be valued at a low amount based on the "money's worth concept" set out in Wilkins v. Rogerson (39 TC 344 and Heaton v. Bell ((1968) 1 All E.R. 857) (i.e., the jewellery would be of little value to anyone other than the employee).

We have also been asked to consider the value would be determined in a manner other than that set out above on the basis of the Hogg (87 DTC 5447), Hale (68 DTC 5326), Lao (91 DTC 330), and Huffman (90 DTC 6405) cases.

Position TAKEN:

The position we previously took has been maintained.

Reasons FOR POSITION TAKEN:

It is our view, with the Waffle case (69 DTC 5007) as support, that the use of the word "value" in paragraph 6(1)(a) excludes the use of the "money's worth concept". It is also our view that the facts of the other cases are significantly different from the situation under consideration.

				940101

XXXXXXXXXX		M. Eisner

Attention: XXXXXXXXXX

June 23, 1994

Dear Sirs:

Re: Employee Service Awards

This is in reply to your letter of January 12, 1994 which is further to our letters January 8, 1993 and June 29, 1993 concerning whether service awards involving jewellery constitute taxable benefits to employees. In our response, unless otherwise stated, statute references are to the Income Tax Act 1970-71-72, c.63 as amended, consolidated to June 10, 1993 (the Act). We regret the delay in providing you with the response.

In our previous letters, we provided general comments in which we indicated that an employee is considered to have received a taxable benefit for the purposes of paragraph 6(1)(a) of the Act where the employer provides the employee with a long term service award of jewellery and the employee acquires ownership of the jewellery at that time. In addition, we indicated that if the employer subsequently incurs an expense in adding to the value of the article of such jewellery, the employee would also be considered to have received a taxable benefit at that subsequent time.

We also indicated that the value of the benefit in respect of an award of jewellery would not necessarily be determined by reference to the amount that an employee could realize if he or she were to sell the article in the open market. While the fair market value of the benefit involves a question of fact, the value of the article of jewellery would ordinarily be considered to be no less than the expense incurred by the employer.

In this regard, we have considered whether the fact that the jewellery (rings) bears a company insignia would result in an employee not being subject to tax on the basis that the ring would not be of value to anyone other than the employee to whom it was presented.

Our comments with regard to that point are set out below:

(a)The decisions in Wilkins v. Rogerson 39 TC 344 and Heaton v. Bell (1968) 1 All E.R. 857 were based on the "money's worth" concept that is utilized in the United Kingdom. Pursuant to this concept, a payment of in-kind consideration will only be regarded as a benefit to the extent that it can be converted to cash. In our view, this concept is irrelevant for the purposes of determining whether a benefit under paragraph 6(1)(a) of the Act has been received as a consequence of the wording set out therein. This provision refers to "the value of...and other benefits of any kind whatever...". It is our view that the use of the word "value" excludes the use of the money's worth concept. These comments are also consistent with the following comments set out by the Court in Waffle v. M.N.R. 69 DTC 5007:

"The doctrine that no form of remuneration is taxable unless it is some thing which is money or money's worth and convertible into money stems from Tennant v. Smith (1892) A.C. 150, decided in the House of Lords as long ago as 1892.

I think that the language employed in section 5 to the effect that the 'value of board, lodging and other benefits of any kind whatsoever', is to be included in taxable income, overcomes the principle laid down in Tennant v. Smith (supra). Obviously, board which has been consumed and lodging which has been enjoyed cannot be converted into money by the taxpayer either subsequently or prior thereto and, in my view, the identical considerations apply to 'other benefits of any kind whatsoever'".

(b)We have reviewed the decisions rendered in Hogg v. the Queen 87 DTC 5447, Hale v. M.N.R. 68 DTC 5326, Lao v. M.N.R. 91 DTC 330, and the Queen v. Huffman 90 DTC 6405. While these cases involved decisions on whether economic benefits were received, it is our view that the facts are significantly different from those under consideration here. In addition, the issue of the manner in which a benefit for the purposes of paragraph 6(1)(a) of the Act may be valued was not addressed. Accordingly, we do not regard them as being decisive one way or the other with respect to the approach that is to be taken in valuing benefits in the form of jewellery.

In summary, it remains our view that the fair market value of the ring should be included in an employee's income although the amount of the benefit so included should not be less than cost. It is our further view that the wording of paragraph 6(1)(a) of the Act does not preclude the use of the employer's cost, in respect of the article, from being used to value the related benefit as long as the approach results in the appropriate amount being included in an employee's income. With respect to the situation under consideration, this would be the case if the use of the "fair market value" concept is not considered to be determinative of the amount that is to included in an employee's income. In addition, it is also our view that the amount of a benefit related to the cost subsequently incurred by the employer would be the fair market value of the stones and related service provided in respect of the jewellery.

We trust that our comments will clarify our position to you.

Yours truly,

J.A. Szeszycki
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch