Revenue minister reviewing CRA guidance on taxable employee discounts

The national revenue minister is reviewing a Canada Revenue Agency guidance document that says employee discounts are to be considered taxable benefits.

This new interpretation of the law could impact millions of Canadian retail employees who currently receive discounts on employer goods.

Up until recently, companies that offered merchandise discounts to staff did not have to report them as taxable benefits as long as they were not sold below cost. But now, according to the updated document, the CRA is advising employers that in certain instances they count as part of income and are considering them fair game to tax.

The CRA’s explainer for employers on how it will now be interpreting the tax law was published on July 7, 2016 in a “folio” -- an update on how the department approaches changes to tax enforcement.

A spokesperson for Revenue Minister Diane Lebouthillier confirmed that her office is reviewing the document.

“Our Government recognizes the important role that the retail sector and those working in it play in our communities and in our economy," Lebouthillier said in a statement Tuesday. "There have been no changes to the laws governing taxable benefits to retail employees. We are not targeting individuals working in retail.”

The statement went on to clarify that the Agency’s guidance document is intended to provide assistance to employers, and the minister’s office “is committed to further clarifying the wording of the document to reflect this.”

A source in the minister’s office said the CRA made the decision without the minister’s approval.

“We are deeply disappointed that the Agency posted something that has been misinterpreted like this,” the source said.

The source also said that the update was brought on by 2011 tax court rulings that found the CRA’s old guidance for employers was inaccurate, forcing the Agency to reevaluate the information it was providing employers. 

Karl Littler, vice-president of the Retail Council of Canada, referred to the Agency’s new guidance as a “bozo eruption.”

“I think that what it is, is an idea that bubbled up from the middle ranks at CRA,” Littler told CTV Power Play’s Don Martin on Tuesday. “They’re pushing a principle to an absurd point, and I just don’t think there was enough political oversight, I don’t think there was enough oversight from senior folks at CRA.”

Littler continued to say that while he doesn’t know whether the revenue minister’s office knew about the guidance document or not, “you would’ve thought that they would’ve stepped in and seen this as not really in keeping with what the government’s approach should be.”

In an earlier statement, Lebouthilier said the goal of her office is to ensure it does not “impose additional administrative burdens on businesses.”

The measure sparked a firestorm of criticism on Monday from Conservative critics and business leaders.

The document says employee discounts would be counted as income, and the value of that discount would need to be taxed at “equal to the fair market value of the merchandise purchased, less the amount paid by the employee.”

Exceptions would only be made on discounts that are afforded to some members of the public at some point during the year.

Conservative finance critic Pierre Poilievre was among those who loudly condemned the guidance, accusing the Liberals of targeting “those who can least afford to pay more.”

Wayne Easter, Liberal MP and chair of the Finance Committee, who had previously expressed dismay at the new approach, told Power Play from Hunter River, P.E.I., on Tuesday chalked it up to “confusing guidelines.”

“I think it’s much better now that the minister has come out today and basically clarified the issue that the current law will remain and not change, and retail employees will not be targeted.”

Speaking about the revenue minister’s office, Easter says the intention was “to take this guideline and to put it out there, hold some educational training on it, clarify it more, and nothing would happen until next year.”

There has been a push for clarity on what the document means, Easter said.

“And that is that employees, who get employee discounts -- as long as it’s not below the cost -- will not be taxed on those employee discounts.”