Revenue Canada to tax employee discounts but Ottawa says it's not 'targeting' retail workers
2 million retail workers could now face new taxes on merchandise purchased with an employee discount
The national revenue minister says she is not looking to target the country's retail workers, even after the Canada Revenue Agency (CRA) issued guidelines to business owners that could pave the way for new taxes on merchandise purchased with an employee discount.
The CRA said in a document posted on its website that discounts for merchandise should be treated as a taxable benefit. The tax collector said that when an employee receives a discount on merchandise — as a benefit of their employment — the value of the discount should be included in the employee's income at tax time.
"However, no amount is included in the employee's income if the discount is also available to the general public or to specific public groups," CRA said in its "folio," a document written in plain language and disseminated to employers to help them interpret the tax code.
The onus would largely be on the employer to keep track of how much an employee saved with discounts in a given year, as they typically file T4s (a statement of remuneration paid) with the CRA for each of their workers.
This whole exercise is about "clarifying" the law, Liberal MP Marco Mendicino said Tuesday during an appearance on CBC's Power & Politics. "If you've got an employee discount that is not available to the public at any point in time, then it will be categorized as a taxable benefit," he said.
Retailers hate the idea
That stipulation was cold comfort to the Retail Council of Canada, who said the proposed CRA changes will be a "potentially horrendous burden" for employers and employees alike who will have to maintain reams of paperwork.
Nor is it clear when a discount will be considered to be offered to the general public and therefore not taxable.
"I don't quite know what that means. If you give the same discount to everybody all year long then there's really no employee discount? I don't know how long would be long enough, and to whom? Red-headed veterans? It does strike me as a bit of an artifice," Karl Littler, the vice-president of public affairs at the council, said in an interview with CBC News.
In the past, merchandise discounts were only considered taxable if the price paid by the employee was below the actual cost of the good to the employer.
According to the agency's website, the change is effective as of the 2017 tax year, along with another major change to the tax code — the elimination of the public transit tax credit.
2 million retail workers
Many of Canada's two million retail workers receive comparatively generous discounts at their place of work, with some companies offering as much as 50 per cent off regular prices. Such discounts are widely seen as a perk to working in sectors that typically offer less pay, irregular work hours and few other benefits.
The difference between the "fair market value" of the merchandise purchased and what the employee paid is what will have to be claimed on a tax return. For example, if an employee buys an $80 sweater for $40, then the employee would have to claim the $40 difference as income.
"It strikes me as odd that you would want to impose this on what are primarily modest income earners," Littler said. "I thought it actually might be a typo."
During an appearance before the House of Commons finance committee late last month, Littler raised issues with the folio's new wording. He said Liberal MP Kamal Khera, the parliamentary secretary to the national revenue minister, and others on the committee, weren't even aware such a major change was coming, even though CRA announced the change last fall.
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"That frankly reaffirms my view that this was done without political oversight, without necessary full supervision, even up to the upper levels of CRA ... it would be cheeky to say it lacks adult supervision but that's sort of the impression we get," he said.
CRA's interpretation has changed
National Revenue Minister Diane Lebouthillier said Tuesday there have been no changes to the laws governing taxable benefits to retail employees.
"The agency issued a guidance document to mainly provide assistance for employers and is committed to further clarifying the wording of the guidance to reflect this," she said in an emailed statement. "We are not targeting individuals working in retail."
While it is true no legislation has been changed, the agency's new interpretation of the income tax law could still be costly for many low-income wage earners.
"Just because the law hasn't changed doesn't mean anything if the interpretation has," Littler said, "And it has."
Pierre Poilievre, the Conservative finance critic, said it's "insanity" that workers will have to document all the discounts they receive on merchandise each year under the new interpretation.
He said if all discounts are not documented, it could turn regular law-abiding Canadians into tax cheats.
"Hardworking, low-income, wage-earning retail workers should not have to pay tax on the small employee discounts they receive, this tax will actually cost more to administer and enforce than it will raise in revenue but it's perfectly consistent with Justin Trudeau's uncontrollable addiction to spending.
"He's running out of other people's money and now he's asking CRA to find him more," he said.