Document No.: 2001-0114067

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

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

PRINCIPAL ISSUES: 1. Whether new policy on gifts and awards applies to gifts and awards given by closely held corporations to their shareholders. 2. Whether there are any other considerations with respect to the application of the new policy.

POSITION: 1. Policy does not apply to gifts and awards given to shareholders of closely held corporations.

2. Policy does not apply where gifts or awards are given as a form of extra remuneration, or given in lieu of taxable remuneration or benefits.

REASONS: 1. Only applies in employment situations, and not individuals receiving items in their capacity as shareholders.

2. Overall policy on nontaxable privileges in paragraph 2 of IT-470R.

December 11, 2001

Vancouver Tax Services Office HEADQUARTERS

Edith Chmielnicki Wayne Antle, CGA

Complex Business Enquiries

2001-011406

New Policy on Gifts and Awards

This is further to our telephone conversation on December 7, 2001 concerning whether the new policy would allow closely held corporations to provide their shareholders with gifts and awards on a tax-free basis.

In response to your question, we have prepared a message that has been added to the Public Enquiries Information Bank ("PEIB") database. We have enclosed a copy of this message for your information.

Thank you for bringing this matter to our attention.

John Oulton, CA

Manager, Business and Individual Section

Business and Partnerships Division

Income Tax Rulings Directorate

Policy and Legislation Branch

Question

Does the new policy on employer-provided gifts and awards allow closely held corporations to give gifts to shareholder/employees on a tax-free basis?

Response

• The new policy only applies in employment situations where employers provide non-cash gifts to employees for special occasions, or non-cash awards to employees to recognize special achievements.

• The new policy does not apply to gifts and awards given by closely held corporations to their shareholders or their relatives, since these gifts and awards are normally considered to be received by the individuals in their capacity as shareholders. This treatment is consistent with the CCRA's general position on shareholder benefits.

Question

Are there any other considerations in respect of the new policy?

Response

• The new policy does not apply where the gift or award, as the case may be, represents a form of disguised remuneration. For example, where the gift or award is given in lieu of extra wages or benefits, it will be treated as a taxable employment benefit.

• The new policy does not apply where an employee foregoes salary, wages, or other taxable benefits in favor of receiving a gift or award. For example, where an employee is entitled to a bonus of $2,000, but asks the employer for a $500 stereo as a Christmas gift, and the employer agrees to reduce the bonus to $1,500, we will consider the value of the stereo to be a taxable employment benefit.

Question

Est-ce que les nouvelles règles régissant les cadeaux ou récompenses accordés par les employeurs permettent aux sociétés à peu d'actionnaires de donner à leurs actionnaires/employés des cadeaux, libre d'impôt?

Réponse

• Les nouvelles règles s'appliquent seulement dans un contexte d'emploi lorsque les employeurs donnent à leurs employés des cadeaux non monétaires pour des occasions spéciales ou des récompenses non monétaires en reconnaissance de certains accomplissements.

• Les nouvelles règles ne s'appliquent pas dans les situations où des sociétés à peu d'actionnaires donnent des cadeaux ou récompenses à leurs actionnaires ou aux membres de leur famille étant donné que ces cadeaux ou récompenses sont normalement considérés reçus par ces particuliers en leur qualité d'actionnaires. Ce traitement est en accord avec la position générale de l'ADRC en ce qui a trait aux avantages conférés aux actionnaires.

Question

Y a-t-il d'autres situations méritant une attention particulière à l'égard de l'application des nouvelles règles?

Réponse

• Les nouvelles règles ne s'appliquent pas dans les cas où le cadeau ou la récompense, selon le cas, représente une forme de rémunération déguisée. Par exemple, lorsque le cadeau ou la récompense est donné en remplacement de salaire supplémentaire ou d'avantages, ce cadeau ou cette récompense sera considéré comme un avantage imposable au titre de l'emploi.

• Les nouvelles règles ne s'appliquent pas non plus lorsqu'un employé renonce à un salaire, traitement ou autre avantage imposable, préférant plutôt recevoir un cadeau ou une récompense. Par exemple, lorsqu'un employé ayant droit à un bonus de 2 000$ demande à l'employeur de recevoir, à la place du montant total de 2 000$, une chaîne stéréo de 500$ pour cadeau de Noël et un bonus de 1 500$, nous considérerons que la valeur de la chaîne stéréo est un avantage imposable au titre de l'emploi.

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