The national revenue minister is blaming bureaucrats at the Canada Revenue Agency for hatching a plan to tax employee discounts, reversing a new interpretation of the tax code she says she never approved in the first place while instructing the agency to pull the plans from its website.
In a statement sent to CBC News, Diane Lebouthillier’s press secretary said she is “deeply disappointed” employees at the tax collector issued a directive — or a “folio” — with new rules around how employee discounts on merchandise would be treated for tax purposes. The CRA had said on its website that when an employee receives a discount on merchandise the value of the discount should be included in the employee’s income at tax time.
“This document was not approved by the minister and we are deeply disappointed that the agency posted something that has been misinterpreted like this,” John Power, a spokesperson for Lebouthillier, said in an emailed statement. “The agency issued a guidance document that does not reflect our government’s intentions and the minister of national revenue has instructed officials to clarify the wording.”
Shortly after the statement was sent out, the folio was pulled from the CRA’s website. Power said the minister has instructed the agency to review its interpretation of the tax code and consult with stakeholders in the industry.
The government’s backtrack comes amid a stunning backlash to the change from the Retail Council of Canada and thousands of the country’s two million retail workers.
Tax ruling demanded new interpretation of employee benefits
While the minister has called for a review, the tax collector is still expected to address taxation on employee discounts.
A 2011 tax court ruling found the CRA’s guidance to employers on this matter was out of date and did not adequately conform to the Income Tax Act, which stipulates most employee benefits should be deemed taxable income.
In response, in its 2016 folio — a document written in plain language and disseminated to employers to help them interpret the tax code — the CRA said employers should start tracking employee discounts and report that as income on an employee’s T4 (statement of remuneration paid) at tax time. Previously, merchandise discounts were only considered taxable if the price paid by the employee was below the actual cost of the good to the employer.
Under the guidelines the CRA had proposed, the difference between the “fair market value” of the merchandise purchased and what the employee paid was what would have had to be claimed on a tax return. For example, if an employee bought an $80 sweater for $40, then the employee would have to claim the $40 difference as income.
Liberal MP Marco Mendicino said Tuesday the folio was simply an attempt by the agency to clarify the law based on an interpretation demanded by a court ruling.