Employee compensation may include not only salary and wages but also non-cash compensation such as stock options and non-monetary benefits such as supplemental health and life insurance. As a general rule, paragraph 6(1)(a) of the Income Tax Act (Canada) requires taxpayers to include in computing their income for a taxation year not only salary or wages received from their employer but also the value of benefits of "any kind whatever received or enjoyed by them in the year in respect of, in the course of, or by virtue of, an office or employment".
One non-monetary benefit that may be overlooked by employers and employees but which does not often escape the notice of the Canada Revenue Agency (CRA) is employer-provided parking. The issue of whether employer-provided parking is a taxable benefit does not depend on who the employer is (e.g., government or private sector), what type of job or position the employee has, or what type of industry the employee works in. For example, while there have been a number of employer-provided parking cases assessed by the CRA and decided by the courts that have concerned private school teachers, the issue affects public school teachers equally. Similarly, the CRA has assessed both employees of private sector businesses (e.g., Telus, discussed below) and municipal government employees.
Two questions must be answered to determine whether employer-provided parking will result in tax consequences for the employee (and in some cases for the employer): does the parking constitute a benefit primarily for the employer or for the employee and if the benefit is primarily for the employee, what is the value of that benefit for tax purposes?
If the employee is considered to have received a taxable benefit, the employee will be taxed to the extent that the value of the benefit exceeds the amount the employee paid, if any, to the employer for the parking. The employee will also be assessed for Canada Pension Plan (CPP) contributions and employment insurance (EI) premiums on the benefit amount to the extent that the employee has not otherwise paid the maximum CPP and EI amounts for the year. Similarly, the employer may also be assessed for employer CPP contributions and EI premiums on the amount of the benefit where it has not otherwise paid the maximum amounts for that employee for the year. Finally, GST/HST may apply to the amount of the benefit.
EMPLOYER-PROVIDED PARKING AS A TAXABLE BENEFIT
What the Courts Say
The Supreme Court of Canada has held, in R. v. Savage, that in order for a benefit to be a taxable benefit to an employee, the receipt of the benefit must confer an economic benefit on the employee. In determining whether the employee has received an economic benefit, the courts normally look at whether the benefit has a business purpose to the employer. Where there is a business purpose, the benefit is considered to be that of the employer rather than the employee and, consequently, there will be no taxable benefit to the employee.
The Tax Court of Canada has considered in several cases whether employer-provided parking resulted in a taxable benefit to employees. These cases show that the determination of whether an employee has received a taxable benefit from employer-provided parking will depend on the facts relevant to the particular employee.
In Saskatchewan Telecommunications v. R., the Tax Court held that the parking spaces that the employer made available to its employees were provided for the employer's benefit, and not for the benefit of its employees, since the employees were required to use their vehicles on more than 30% of their working days for business purposes, and this business travel could be done more quickly and efficiently when the vehicles were located in the employer-provided parking spots.
Three Telus employee cases illustrate how fact-specific this issue is. In Chow and Topechka v. R., the Tax Court found that it was to the economic advantage of Telus to provide a parking space to a particular employee, as the employee could work late hours and it was more cost-effective for the employer to provide a parking space than to pay the employee's taxi fares. Accordingly, there was no taxable benefit to the employee.
In Adler v. R, the Tax Court concluded that 14 of 16 Telus employees who were provided with parking passes had received a taxable benefit from their employer because they were the chief beneficiaries of the parking passes: the provision of free parking eliminated the need for them to pay for parking out of their own pockets. The value of the benefit to a particular employee depended on where the parking was located and whether the parking spot was assigned. However, the Court held that the remaining two employees did not receive a taxable benefit because one worker did not use the pass, and the other worker was required to travel for employment (and so the pass benefitted Telus rather than the employee). Similarly, in Schroter v. R, the Tax Court found that one Telus employee had received a taxable benefit because the employee's decision to drive to work was essentially a matter of personal choice, while another employee had not received any taxable benefit because he needed transportation for his duties and therefore the employer-provided parking was for the benefit of Telus' business.
As to the value of the benefit, the Tax Court concluded in several cases that valuing the parking benefit at the employer's cost was the correct approach. However, on the appeal of the Tax Court decision in Schroter, the Federal Court of Appeal (FCA) agreed with the CRA's position that the value of the benefit should be the fair market value of the parking minus any amount paid by the employee. In subsequent decisions (Spence v. R. and Anthony v. The Queen), the FCA has consistently held that the fair market value approach (and not the cost approach) is the correct way to determine the value of the parking benefit to the employee.
In determining the fair market value of employer-provided parking, the Tax Court in Anthony concluded as follows (at paragraph 85):
It would seem to me that the best comparables would be the ones with similar characteristics and nearest to the subject property because supply and demand factors of properties near the subject could be presumed to be similar to those affecting the subject. In order for a property that is some distance from the subject to be a valid comparable, there would need to be some evidence to show that the supply and demand factors are similar in both cases, or that the difference in location could somehow be adjusted for.
Interestingly, in the Tax Court's decision (approved by the FCA) in Anthony, the Court noted that it had not been presented with any evidence to support a downward adjustment to the fair market value of the parking spots. The Court's comment suggests that a downward adjustment would be appropriate where evidence can be provided to support a lower value for a particular parking spot such as, for example, where only tandem parking is available. In calculating the benefit, the Court in Anthony did take into account the fact that parking was available to the employees, who taught at a private school in Toronto, for only 9 months of the year.
The Canada Revenue Agency's Administrative Practice
Generally, the CRA considers employer-provided parking to constitute a taxable benefit to the employee, unless the employee has a disability or the parking is provided for business purposes. This is so regardless of whether the employer owns the parking lot. The CRA's approach to valuing parking benefits is consistent with the FCA's valuation approach: the amount of the benefit is the fair market value of the parking space minus any amount the employee pays to use the parking space.1
With respect to parking provided for business purposes, consistent with the case law described above, the CRA's administrative policy is to not assess employer-provided parking as a taxable benefit to an employee where the employer provides a free parking space for an employee who is regularly required to use his or her vehicle to carry out the duties of employment, such as travelling off-site to meetings or service calls. To satisfy this regular use requirement, the employee must be required to use his or her vehicle for employment-related travel on more than half the number of workdays during a work week (e.g., 3 or more days per week in a normal five-day work week). While this is more stringent than the 30% test used by the Tax Court in the Saskatchewan Telecommunications case, the CRA has indicated that its test is simply a general guideline and that a different benchmark may be appropriate depending on the particular circumstances.
In the CRA's view, situations that would not meet the regular use test include:
- Driving from the employee's home to the office and back (as the Court concluded in Schroter, this is personal rather than business travel);
- Parking to facilitate working irregular or extended hours (this seems to contradict the conclusion reached in Chow and Topechka);
- Where the employee leaves the office for a meeting but does not use a vehicle (e.g., walking or taking a taxi to a meeting); and
- Where the employee uses a vehicle only to satisfy the regular use test (e.g., driving to a meeting across the street, or where the employee would generally carpool or take a taxi).
If an employee does not meet the regular use test but needs a parking space occasionally when required to use a vehicle for employment-related reasons, the CRA has indicated that the taxable benefit otherwise determined may be reduced on a reasonable basis to account for such incidental employment-related use.
As a practical matter, the CRA considers the fair market value of employer-provided parking to be nil where the employer's business operates from a shopping centre or industrial park where parking is available for free to both employees and non-employees.
The CRA has also acknowledged that if the fair market value of employer-provided parking cannot be determined, then no benefit should be added to the employee's remuneration. One such situation specifically identified by the CRA is where an employer provides what it calls "scramble parking", i.e., there are fewer parking spaces than there are employees who want parking and the spaces are available on a first-come, first-served basis. In the CRA's view, the key requirement for scramble parking is that an employee's ability to find a parking spot on a given day is random or uncertain. As such, there must be significantly fewer parking spaces than employees desiring a space. Consistent with its view, the CRA has clarified that if the number of parking spaces available accommodates most (but not necessarily all) of the employees who want one, then there is no scramble parking.
DETERMINING WHETHER PARKING IS A TAXABLE BENEFIT – QUESTIONS TO ASK
- Does the employee need to use his or her vehicle for employment duties?
- If so, how many days a week does the employee use his or her vehicle for employment duties?
- Is parking free and available for employees and non-employees alike?
- Are there enough parking spaces for each employee who wants one, or are there only limited spaces available on a first-come, first-served basis?
- What is the going rate (fair market value) for a comparable parking space in the area?
Since the determination of whether employer-provided parking is a taxable benefit to the employee is dependent on the specific facts, a particular situation may not necessarily fit neatly into either the yes or no category. In these "grey-area" situations, it is advantageous for employers and employees to seek advice from a tax professional, ideally before being confronted with a reassessment from the CRA.
1 GST/HST is also included in the value of this type of benefit for tax purposes.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.