By: Cory G. Litzenberger, CPA, CMA, CFP, C.Mgr – President & Founder of CGL Strategic Business & Tax Advisors.
Say you are a business and you invite your 30 staff to your annual Employee BBQ
The company shells out $1,500 for the event at $50 a person fully expecting everyone to attend but as luck would have it, the weather doesn’t co-operate, so most people stay home.
When it is all said and done, only 9 diehard employees show up.
Well, it gets worse.
According to the Canada Revenue Agency these loyal 9 employees now have a taxable benefit.
On April 9, 2018, the CRA released an (originally in French) Internal Technical Interpretation (2017-073125117 F). In this interpretation, the CRA states that the benefit is calculated based on the total cost paid by the employer divided by the number of attendees.
The CRA does not factor in total number invited, just those that show up.
When you take the full $1,500 cost and divide it among the 9 employees that actually attended, the per person benefit is now over $150. As a result, the employees in attendance have a taxable benefit to include in their income.
Meanwhile, those that stayed home, are not affected.
I can just imagine the office dynamics as the 9 people go on the warpath on the other 21, which only needed one of them to attend to avoid this issue.
While I can understand the intent of the provision to prevent large amounts being spent for only a few, it appears to be counter-productive where accidentally falling offside because of a decrease in attendance would now be considered a taxable benefit to those in attendance.
The meal consumed does not change.
The chair to sit on does not change.
But according to the CRA, the benefit changes.
This interpretation is problematic and should be corrected by the CRA or Finance.
Until then… stay home… it’s cheaper.