Employee Directed Gift to a Charity
by Arthur Drache
Making a charitable donation in honour of or in memory of a third party is of course a common event. In such a case, the donor will normally get a receipt for tax purposes and the charity will arrange for the fact of the donation to be known to the honouree or the deceased’s family.
But a recent ruling letter from the CRA deals with a different fact situation which may be of some general interest
To understand the gist of the ruling you have to know how the CRA deals with gifts to employees for long-term service.
The question posed was whether an employee will realize a taxable employment benefit if he or she opts to forego a non-cash gift valued under $500 that the employee is otherwise entitled to under the employer’s incentive programme, with the result that the employer would make a cash gift of a specified amount to a specified registered charity. For starters, in this situation, the employee would not receive the charitable donation receipt.though the ruling is silent on whether the employer would get a receipt.
Paragraph 6(1)(a) of the Income Tax Act states that a taxpayer’s income from an office or employment shall include “the value of board, lodging and other benefits of any kind whatever received or enjoyed by the taxpayer in the year in respect of, in the course of, or by virtue of an office or employment”, with certain stated exceptions. An amount or benefit not directly received or enjoyed by a taxpayer may also be included in his or her income under these provisions under subsection 56(2) of the Act.
Although, there is no provision in the Act that excludes gifts and awards provided to an employee from being subject to tax, the CRA has an administrative policy that allows an employer to give an employee a non-cash long-service or anniversary award valued at $500 or less, tax free. The award must be for a minimum of five years’ service, and it has to be at least five years since the employer gave the employee the last long-service or anniversary award. Any amount over the $500 is a taxable benefit.
So what happens if the employee, instead of taking the gift, asks that it be donated to a charity?
Subsection 56(2) of the Act states that “a payment or transfer of property made pursuant to the direction of, or with the concurrence of, a taxpayer to some other person for the benefit of the taxpayer or as a benefit that the taxpayer desired to have conferred on the other person … shall be included in computing the taxpayer’s income to the extent that it would be if the payment or transfer had been made to the taxpayer”. The concurrence or participation of the taxpayer in the conferring of the benefit to a third party may be passive or implicit and can be inferred from all the circumstances of a particular situation.
And then we get the nub of the ruling.
“Generally, we are of the view that where an individual directs that an amount to be received from an office or employment be paid directly to a charity, subsection 56(2) of the Act will apply to include that amount in the employment income of that individual in the same manner as if it were paid directly to the individual. However, in light of the facts that the long-service award conferred on the charity would have been a non-taxable non-cash gift if it were received by the employee; the employee, employer and charity are dealing at arms length; the employee does not receive a charitable donation receipt; and the donation is under $500, it is our view that the CRA administrative policy on non-cash gifts and awards would apply providing that the employee would not forego any salary, other compensation or taxable benefits as a result of the donation.
The ruling makes perfect sense from a tax point of view and we think this is a wrinkle which interested people might tuck away for future reference. The fact situation might not arise very often but when it does, the ruling will be useful.
 A complete detail of the administrative policy is available on the CRA website at www.cra.gc.ca/gifts.
 . This provision is discussed in detail in Interpretation Bulletin IT-335R2 – Indirect Payments, dated July 12, 2004, which is available on the CRA website.