The amendments to the provisions respecting benefits in respect of employment under 6(1)(a) would be clarified to require inclusion of all employment benefits received by a person who does not deal at arm’s length with the employer in the employee’s income, other than those benefits specifically excluded.  

A new exception, section 6(1)(a)(vi), will apply to any benefit received or enjoyed by a person who is not the employee under a program provided by the employer that is designed to assist individuals to further their education, if (1) the benefit is not a substitution for salary, wages or other remuneration of the employee, and (2) if the employee deals at arm’s length with the employer. In essence, this clarifies that tuition or educational awards to an employee’s family members  (and others) will not be included as taxable income of the employee.

This new education-related exception would expand upon the Canada Revenue Agency’s (“CRA”) recent policy shift in respect of the general tax treatment of tuition awards and other education-related benefits received by employee family members. As previously discussed in our FTR Now of October 2, 2009, CRA adopted an updated policy position in response to a number of Tax Court decisions that found such benefits were not properly taxable to the employee, contrary to the CRA’s previous, and unpopular, policy position that such benefits ought to taxable to the employee.

A new “deeming” amendment would capture amounts paid out of employee benefit plans to individuals related to officers or employees who participate in such plans, where the individual recipient does not deal at arm’s length with the employee-taxpayer (such as the taxpayer’s spouse), the amount is received in respect of an office or employment of the employee-taxpayer, and the employee-taxpayer is living at the time the amount is received by the individual (ss. 6(1.2)). The amendment will cause such amounts to be deemed to be received by the employee-taxpayer.

The proposals also outline new rules and interpretation points for the application of subsection 15(1), which deals with the valuation of benefits conferred upon shareholders.

Finally, the proposed amendments would extend certain exemptions from the prohibited investment rules where a MEPP offers a money purchase provision (i.e. a defined contribution component). Such MEPPs will be permitted to hold limited investments in connected employers, on certain conditions under Regulation 8514(2.1). Currently the exemption enabling a MEPP to invest in the securities of connected employers applies to MEPPs which only provide defined benefits.