10/16/2017 17:05 EDT | Updated 10/16/2017 17:25 EDT

Diane Lebouthillier Denies Tossing Civil Servants Under Bus On Employee Discounts Tax Controversy

Her staff blamed her own department after public outcry.

Sean Kilpatrick/CP
Diane Lebouthillier, Minister of National Revenue, stands during question period in the House of Commons on Parliament Hill on Sept. 21, 2017.

OTTAWA — Canada's revenue minister denied throwing public servants under the bus Monday, a few days after her staff blamed her department's civil servants for a public outcry over taxing employee benefits.

Minister of National Revenue Diane Lebouthillier told reporters four times Monday that she had not been made aware of a changing interpretation of the Income Tax Act, which deemed employee discounts a taxable benefit.

"We did not blame the bureaucrats," she said, as she walked out of a Liberal caucus meeting. "...There was an interpretation of the law, I was never made aware [of]. I was made aware by our partners," she said, apparently referring to the Retail Council of Canada.

'I was not made aware'

"I was not made aware," she repeated, fingering the bureaucrats she said she wasn't blaming. "Dommage, I was never made aware. It's administrative work. It did not make its way up to my office, but as soon as we were made aware, we took measures."

Last week, Lebouthillier asked her department to delete a folio — a document explaining the upcoming tax changes for the 2017 financial year — from the government's website. The folio, which was published in 2016, had caught the eye of the Retail Council of Canada, which sounded the alarm last month over what looked like changes that would force employers to keep track of employee discounts and include them as taxable benefits.

The Conservatives, the NDP and working Canadians, especially those in the retail sector who are obliged to buy a company's clothing, for example, reacted swiftly. Following the backlash, Lebouthillier launched an internal review of the document and promised to consult stakeholders on the revised guidance.

She also faulted her department for the decision.

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In a statement to HuffPost Canada last Wednesday, Lebouthillier's spokesman, John Power, said the government is not changing the law governing taxable benefits to retail employees.

"This document was not approved by the minister, and we are deeply disappointed that the agency posted something that has been misinterpreted like this," Power wrote. "The agency issued a guidance document that does not reflect our government's intentions, and the Minister of National Revenue has instructed officials to clarify the wording," he added.

Power told HuffPost that the minister's office had not been made aware of the department's new interpretation of the law, despite the folio's having been published one year earlier. Power said Lebouthillier's staff learned about the new change in interpretation when the Retail Council of Canada's Karl Littler testified before the finance committee in late September.

Littler told MPs that the folio contained a very different interpretation of the Income Tax Act related to treating employee discounts as taxable benefits, come Jan. 1, 2018.

'We thought this might be a typo'

"Initially we thought this might be a typo, and we flagged the inconsistency for CRA. But no, it turns out the CRA does intend to change its long-standing practice in just over three months' time," he told committee members.

"Why ... would the government want to abandon its long-standing practice and start to tax a store employee for a 20 per cent discount on a pair of jeans, or a restaurant worker coming off shift for a meal at the end of the night?

"If these benefits were truly substantial additions to income, that could perhaps be understood, but they are typically of small value in each instance and even over the course of the year. To be taxed on these will reduce income for front-line workers, or they will be forgone altogether to avoid the tax consequences," he said, also noting that it would be an "administrative nightmare" for employers.

In the House of Commons on Monday, Conservative Leader Andrew Scheer attacked the government, saying the changes may get revised, but they haven't been cancelled.

Scheer goes on offensive

"That is an important distinction," he said. "... Why is it that whenever hardworking Canadians look behind them they see the prime minister try to take more and more of their hard-earned money?"

Lebouthillier responded that the government would not be targeting benefits to retail workers. But she stopped short of saying other employees would not be affected by her department's changing interpretation of the law.

"Our government is focused on helping the middle class," she insisted. "The document from the agency did not reflect the intention of our government.... We will not be going after anyone's retail employee discounts," she read from her talking points.

She did not respond when Scheer asked if the government could commit that "nobody's employee discounts would be touched" by the taxman.

The Income Tax Act currently outlines several instances when employee benefits should be taxed and included as income. For example, if an employer provides:

  • an automobile or a car allowance that is used for personal travel,
  • lodging or subsidized housing;
  • off-site childcare;
  • financial counselling or help filing income tax;
  • a transit pass or parking;
  • an allowance for tools;
  • spousal or partner travel when the spouse or partner is not engaged in business activities;
  • cash gifts or rewards, such as a $100 gift card to a high performer.

These rules still apply.

Lebouthillier told reporters that the Income Tax Act hasn't changed.

"The law is still exactly the same law," she said. "The law is the same," she repeated again three times.