BUSINESS

Feds’ New Tax On Employee Discounts Hits Low Earners Hardest: Critics

It may be that Liberal cabinet members didn't notice this change at Canada Revenue.

10/10/2017 11:47 EDT | Updated 10/10/2017 15:37 EDT
Caiaimage/Trevor Adeline via Getty Images

You know that discount you get on jeans from the apparel store where you earn minimum wage? Under new guidelines published by Canada Revenue Agency, you owe taxes on those discounts.

Or let's say you're a barista earning $20,000 a year, and you get $200 in discounts on coffees over the course of a year. This means you have to pay taxes on $20,200 of income. As if the cheap coffee were a raise.

"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," Canada Revenue Agency stated in a recently published folio.

"The discount may be provided by the employer or by a third-party."

There's one tiny loophole: You don't have to pay taxes on a discount if it's available to the general public as well.

Watch: NDP reminds Tories they broadened offshore tax schemes

The Globe and Mail notes that the new rule contradicts the CRA's employer guide, which has long stated that employee discounts are not taxable.

But a Canada Revenue spokesperson told the newspaper the new rule is correct, and CRA employer guides will be updated with it.

The rule isn't sitting well with some Opposition Conservative MPs, including Deputy Leader Lisa Raitt, who argued on Twitter Monday that the Liberal government is "picking the pocket of minimum wage earners."

Pierre Poilievre, the Conservative finance critic, said in a statement Monday that the tax changes "target those who can least afford to pay more," according to CTV News.

Employee discounts tend to be most common in low-wage work. Karl Littler, vice president of the Retail Council of Canada, told a Commons committee last month that the changes would affect a large number of the 2 million or so retail workers in Canada today, and hundreds of thousands of others in other sectors.

He also said the new rule would create an "administrative nightmare" because employers will have to track every discounted item sold to an employee, and then add the discount amount to employees' earnings.

THE CANADIAN PRESS
Conservative MP Pierre Poilievre stands during question period in the House of Commons on Parliament Hill in Ottawa on Thursday, Oct. 5. Poilievre is criticizing a Canada Revenue decision to tax employee discounts.

"Why would the government want to abandon long-standing practice to start taxing a store employee for a 20-per-cent discount on a pair of jeans?" Littler asked, as quoted by the Globe.

Some Liberal MPs don't appear to be on board with the change either. In fact, Commons finance committee chair and P.E.I. MP Wayne Easter suggested to the Globe and Mail that cabinet members may not have been aware that CRA had changed its interpretation of the law.

He believes CRA should rethink its new rule.

"They had better," the Globe quoted him as saying.

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