Historically, CRA has stated that an employee enjoying a discount on the purchase of merchandise from their employer is only taxable if a limited number of specified situations exist, such as where the employer makes a special arrangement with the employee or group of employees to buy the merchandise as a discount; the employee buys the merchandise for less than the employer’s cost; or the employer makes a reciprocal arrangement with another employer so that the employees of one employer can buy merchandise from the other at a discount.
While the above guidance is still published in certain CRA documents, CRA has recently released updated guidance which appears to limit this administrative position. In CRA Folio S2-F3-C2, CRA noted that where an employee receives a discount on merchandise because of their employment, the value of the discount is generally a taxable benefit. This would apply regardless of whether the discount was provided by the employer or a third-party.
This updated guidance appears to be consistent with a number of Court decisions.
Action Item: Consider your business policy in respect of discounts on merchandise for employees in light of this updated administrative position.
The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a blog such as this, a further review should be done by a qualified professional.
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