Donna Mazerolle & Associates Newsletter
Issue 3 – JULY 2011
SUBJECT: What You Need to Know About Employee Social Events
Every month or two, you likely face a decision on how to classify an expense that is outside the norm of day-to-day business. Be aware that your decision(s) may come back to haunt you, should the CRA (Canada Revenue Agency) challenge how you classified and claimed an expense.
This month, there are two examples to learn from.
It’s best to take a minute or two to review each, and take note if they apply to your situation. As the examples demonstrate, you can’t assume that, “expenses” can be claimed as you may expect.
What You Need to Know About Employee Social Events
In an October 8, 2010 Technical Interpretation, CRA notes that where an general, the place of supply is the employer provides free of charge to all employees, a party or other social event, there is no taxable benefit if the cost per employee does not exceed $100. This limit is per occurrence. More than one event per year may be offered by the employer if it is reasonable in the circumstances.
Where the event is offered to all employees and their spouses, the average cost of $100 is calculated based on the total number of guests and not only by the number of employees.
The $100 is an average based on the total amount paid by the employer for the reception or social event, including room rental, food and entertainment expenses. Thus, it is necessary to include the GST/HST paid by the employer in calculating the average cost of the evening.
Additional costs such as transportation home, taxi fare, and overnight accommodation are not included in the $100 per person. If the cost is greater than $100 per person, the entire amount, including the additional costs, is a taxable benefit.
A Tax Court of Canada Ruling on Paying a Salary to a Spouse
In a March 14, 2011 Tax Court of Canada case, the issue was whether CRA was correct in denying the Appellant’s deduction for a salary to his spouse against his Proprietorship income in 2005 of $9,200.
The Court noted that:
1. In 2005 the Appellant needed additional help in his Proprietorship and he retained his spouse who has a Bachelor of Science Degree from the University of Windsor in Honours Electrical Engineering/Computer Option.
2. The Appellant stated that his spouse supervised the installation and implementation and debugging of a particular hardware at the customer’s site. The project lasted for about four months.
3. The Court concluded that it was more likely than not that the taxpayer did retain services of his spouse in 2005 and that she earned the $9,200 paid for those services.