Feds ditch memo calling for controversial employee discount tax, pending review

National Revenue Minister Diane Lebouthillier’s decision to restore the old wording came after strong objections from the business community. (Photo: Diane Lebouthillier/Facebook)

OTTAWA—The federal government has instructed the Canada Revenue Agency to remove a controversial tax policy interpretation that would have seen employees taxed for discounts they get at work.

To calm a growing controversy, National Revenue Minister Diane Lebouthillier directed the CRA on Wednesday to remove from its website the new wording at the heart of the debate — at least until the change has been reviewed.

Lebouthillier’s decision to restore the old wording came after strong objections from the business community.

They warned the unexpected reinterpretation would lead to new taxes on retail workers, many of whom earn modest wages. Industry groups also said it could create big administrative burdens if employers were required to track staff benefits.

The confusion created by the change appeared to surprise Lebouthillier, whose office blamed the CRA for the original decision to update the wording without her approval.

“This document was not approved by the minister and we are deeply disappointed that the agency posted something that has been misinterpreted like this,” spokesman John Power wrote in an email Wednesday.

He said the CRA will hold an internal review on the wording change, which will be followed by a consultation on the issue with industry groups. The former wording in the agency’s employer’s guide on the issue of employee benefits was to be reinstated.

Late Wednesday, Prime Minister Justin Trudeau weighed in on the issue.

“Let me be blunt: we are not going to tax anyone’s employee discounts,” Trudeau wrote on Twitter.

“Minister (Lebouthillier) has asked the CRA to fix this.”

A spokesman for Lebouthillier said earlier Wednesday that the CRA will hold an internal review on the wording change, which will be followed by a consultation on the issue with industry groups. The former wording in the agency’s employer’s guide on the issue of employee benefits was to be reinstated.

“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,” John Power wrote in an email.

“We are deeply disappointed that the agency posted something that has been misinterpreted like this.”

On Tuesday, Lebouthillier insisted Ottawa was not targeting retail-sector workers.

A government source added Wednesday that the CRA has no interest in pursuing smaller benefits obtained, for example, by retail employees who receive discounts on items like clothing because it’s not cost effective for the agency.

The agency’s concern is really about individuals who receive larger, non-monetary benefits that go unreported as income, said the source, who was not authorized to discuss the matter publicly.

One example cited in the CRA’s tax “folio,” which included the updated interpretation, referred to a 2011 Federal Appeal Court ruling on a case involving teachers at a private school. Staff at the school received 50 per cent discounts on tuition fees, which at the time amounted to up to $5,000 a year.

The controversial update to the CRA documents first appeared in a tax folio and was later added to the agency’s employer’s guide.

The change stated that when an employee receives a discount on merchandise because of their employment, “the value of the discount is generally included in the employee’s income.”

It also said the value of the benefit is “equal to the fair-market value of the merchandise purchased, less the amount paid by the employee.”

However, the updated document noted that no amount will be included in the employee’s income if the discount is also available to the general public or to specific public groups.

Karl Littler, vice president of public affairs for the Retail Council of Canada, welcomed the government’s decision to remove the change.

“Obviously, that’s a pretty positive development from our perspective,” Littler said in an interview. “It does seem to us that there’s some kind of assertion of political oversight over the file at this point at the ministerial level. …

“It doesn’t end the issue, because we’ve got to have the consultation process, but it certainly changes things from where they were, which (was) extreme level of uncertainty.”

Political opponents have also attacked the Trudeau government over the issue.

“The Liberals still haven’t taken this terrible idea off the table, but maybe they’re starting to realize that going after low-income earners while ignoring the corporate elite, is a non-starter for Canadians,” New Democrat MP Pierre-Luc Dusseault said in a statement Wednesday.