A maelstrom of criticism has led to the federal government to review the wording in its latest tax guide for employers. Claims that it’s unfairly targeting retail workers and low-wage earners by interpreting employee discounts as taxable benefits has prompted a swift backlash, and response.
Conservative Finance critic Pierre Poilievre, strongly criticizing the rules, took to Facebook Live to chat with staff at local small businesses.
“(The) Liberal government is very concerned that waitresses are not paying tax on the employee discount they get on their chicken salad at work,” he wrote in a fiery message to followers. “No new taxes on Trudeau’s ‘family fortune’ though. This guy is out of control.”
Ed Strapagiel, a retail analyst and consultant told Yahoo Canada Finance it seems “heavy-handed to pick on retail employees.”
“It’s not as if they’re making the big bucks,” says Strapagiel. “The employee discount is considered part of the package by many retail employees, particularly the experienced ones – it’s also something that retailers offer in lieu of better pay.”
But Revenue Minister Diane Lebouthillier said in a statement that the “folio” which appears to be last modified Oct. 12, 2016, isn’t a change to existing tax laws, its a guidance document to provide assistance for employers.
“Our Government recognizes the important role that the retail sector and those working in it play in our communities and in our economy,” Lebouthillier said in a statement Tuesday. “There have been no changes to the laws governing taxable benefits to retail employees. We are not targeting individuals working in retail.”
According to the folio, which offers examples and interpretations related to tax law, “when an employee receives a discount on merchandise because of their employment, the value of the discount is generally included in the employee’s income under paragraph 6(1)(a).” This stands regardless of whether or not the discount comes from the employer or a third party.
“The value of the benefit is equal to the fair market value of the merchandise purchased, less the amount paid by the employee,” according to the interpretation. “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.”
When benefits should be taxed
Dale Barrett, author of “Tax Survival for Canadians: Stand up to the CRA” and the principal of Barrett Tax Law, says he’s unsure of what has ignited the fervour but it raises some good points surrounding why the wording should be clarified.
“I understand why they would want to call a discount a benefit,” says Barrett. “I think there should be some sort of size test.”
He points to an example where two employees work for an apartment building owner and one lives off-site while the other lives at the apartment building but gets a 50 per cent discount in rent while taking a comparable salary cut. Ultimately, the one who lives off-site ends up paying potentially thousands more in taxes.
“Should that (discount) not be taxable?” asks Barrett. “But the kid making minimum wage getting discount burgers, should that really be counted? It’s a bit absurd.”
That’s why he argues there should be some sort of threshold where the rules around declaring an employee discount as taxable income kicks in. But in essence, discounts are benefits, says Barrett, pointing out that lots of employees will take jobs with their favourite retailers or brands in order to get discounts. While the Employment Standards Code doesn’t allow employers to force employees to buy clothes from their store to wear while working, there are plenty of employers that offer a discount to entice those employees to look the part.
“If you told them they didn’t get that anymore, it would make the job less interesting and they may want to move elsewhere despite liking the stuff,” he says.
Despite the debate surrounding the employee discount tax rules, Barrett says it’s unlikely to be enforced with as much zeal as its provoked amongst critics.
“I’ve never seen a discount be interpreted as a benefit or be taxed… the only time I’ve seen employees targeted is for stock options certain employee benefits where they made money or they bought part of the company at a discount,” he says. “If you’re working at Burger King getting half-priced whoppers on your Friday after-school shift, I wouldn’t worry about it too much.”