Free passes for city councillors taxable: CRA

Toronto councillors must return transit, zoo and golf passes or pay back taxes for two years
By Shannon Klie
|Canadian HR Reporter|Last Updated: 07/22/2010

Toronto city councillors must turn in their 2010 transit passes and other free passes or pay back taxes for the perks in 2006 and 2007, according to an audit by the Canada Revenue Agency (CRA).

Toronto Transit Commission Metropasses, Toronto Zoo passes, golf passes and tickets for performances at the Sony Centre for the Performing Arts are all taxable benefits, found the audit. If a councillor wants to keep a pass, or wants one in the future, it will be considered a taxable benefit, according to an internal City of Toronto memo.

The CRA finding was long overdue, according to the Canadian Payroll Association.

“We were keenly aware of the City of Toronto decision. We had felt for a long time that those should have been benefits that should have been assessed,” said Steven Van Alstine, vice-president of compliance programs and services at the Canadian Payroll Association.

A Metropass wouldn’t be a taxable benefit for a transit worker, just as a zoo pass wouldn’t be a taxable benefit for a Toronto Zoo worker, he said.

“Those are kind of grey areas; there are some conditions that would make some of those benefits non-taxable but, ultimately, the CRA said, ‘The city doesn’t meet those conditions so therefore those have to be assessed as taxable,’” he said.

The decision has split Toronto councillors. Councillor Howard Moscoe said as a member of the Sony Centre for the Performing Arts board, he needs to attend performances and make decisions about future bookings so he shouldn’t have to pay tax on the free passes.

On the other side, Councillor Rob Ford — who is also a mayoral candidate in the upcoming Toronto election and wrote letters to CRA asking for an audit of councillors’ perks — is pleased with the finding.

Taxed or not, councillors shouldn’t be taking these perks, said Ford.

“A councillor that makes $100,000 a year does not need a free Metropass,” he said. “Keeping the Metropass and paying $200 (in tax) is outrageous because the average person has to pay $1,300 for their Metropass.”

However, CRA’s decision with regards to parking for city staff should be reviewed, said Ford. The agency has assessed more than 1,700 city employees as owing back taxes for having access to parking in 2006 and 2007, whether they used it or not.

“I don’t believe we have to throw city staff under the bus because the councillors are taking all these free perks. The city staff are the backbone of our city. We should protect them, we should stick up for them,” said Ford.

The city will in fact compensate all workers who have to pay back taxes on parking, as long as they file a notice of objection with CRA by June 30 and turn over any resulting funds to the city.

Employers tend to fall into one of three classes in their approach to taxable benefits, said Van Alstine. There are those that know the requirements and comply with them, those that aren’t aware of the requirements and those that consciously decide not to comply.

“In some cases, it is ignorance. Organizations aren’t aware that there would be an implication for taxability,” said Van Alstine. “Then there are those that say, ‘Despite the compliance obligation, we don’t want to be penalizing our employees so therefore we’re going to make a business decision to not assess something that should be assessed.’”

While CRA cannot comment on the findings of specific audits, it is common for the agency to identify inconsistencies with how taxable benefits are reported or calculated, said Caitlin Workman, a spokesperson at CRA.

“It is the employer’s responsibility to ensure that all taxable benefits are reported on the employees’ T4 slips,” she said. “If the taxable benefits have not been reported properly, the employer should amend the employees’ T4 slips to ensure that the taxable amounts are included in income, as required by the legislation.”

The agency’s Employers’ Guide, Taxable Benefits and Allowances helps employers determine which employee benefits are taxable. It is available at www.cra-arc.gc.ca/E/pub/tg/t4130/t4130-e.html.


Top 10 tax blunders

Issues with employee taxes

During audits or examinations, the Canada Revenue Agency has often discovered issues with the following employee compensation, perks and benefits. All of the items, except the first two, are taxable benefits, said Steven Van Alstine, vice-president of compliance programs and services at the Canadian Payroll Association.

• salary expenses

• reclassification of employment status (for example, paying an individual as a contractor when they really should be classified as an employee)

• automobile and motor vehicle benefits and allowances

• stock options

• personal and living expenses

• parking

• gifts and awards

• interest-free or low-interest loans

• travel and meal allowances

• insurance plans

Employers should evaluate their practices with respect to the assessment of these benefits during the year-end process to ensure proper compliance practices are being followed, said Van Alstine.

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