What is a Taxable Benefit?
A taxable benefit is a benefit that a taxpayer receives, typically paid for by a corporation, that is more related to personal choices than business expenses. If this is the case, then the taxable benefit is counted as income to the person who receives it.
For example, in 2008, the head of Cirque du Soleil took a trip to the International Space Station. It was paid for by his corporation. He claimed that the trip was for advertising and promotion of his business. The Canada Revenue Agency disagreed and ruled that it was his personal choice to go to Space, and this should have been counted as his personal income, and not a business expense.
Are all Benefits Taxable?
The answer is no. Some benefits are not considered taxable benefits. There is a Canada Revenue Agency analysis found here, that determines whether a simple benefit will be deemed taxable or not. Essentially, the question is whether the taxpayer receives an economic advantage or benefit that can be measured in money, and whether the taxpayer is the primary beneficiary of the benefit.
What if the CRA thinks I received a Taxable Benefit, but I disagree?
If the Canada Revenue Agency is auditing you, or your company, and determines that you received a taxable benefit, there are ways of fighting it. First, you may argue that what you received is not a taxable benefit because it benefited the company, and was not a personal choice. If that argument fails, you may attempt to argue that even if it was a benefit, it cannot be measured in money. This is typically the argument for those who accumulate credit card points through a business, and then use those points personally. There are a number of Tax Court decisions on this issue, but the vast majority have ruled that unless the benefit can be measured in money, it cannot be considered a taxable benefit.
If the CRA determines that the benefit is measurable in money, and adds that amount to your income, you will need to file a notice of objection to any notice of reassessment you receive. You will then have the opportunity to argue any of the above points again, and you may even choose to argue that the benefit is worth less than what the Canada Revenue Agency is claiming.
Taxable benefits are a difficult subject because there are many business expenses that may be considered more of a personal choice than a business expense. However, these expenses typically do provide benefit to the company paying for them, as well as the person who receives the benefit. If the CRA is asking you about taxable benefits, or if they ruled that you received a taxable benefit, you have right. Call us today to see what we can do for you!
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.