Question

Exercise Three - 3

Subject: Employee BenefitsJohn Nilson is an employee of a high end furniture store. During the current year, John receives a number of benefits from his employer. Describe the tax consequences for John that result from receiving each of the following benefits.

• A 35 percent discount on merchandise with a total value of $10,000.
• Reimbursement of $2,000 in tuition fees for a course in creative writing.
• Business clothing with a value of $8,500 to be worn during working hours. (John’s employer felt he needed a better image in dealing with clients.)
• A set of china on the occasion of John’s wedding anniversary costing $450, includ- ing taxes.
• A private health care plan for John and his family. The employer pays an annual pre- mium of $780 for this plan.

Answer 1

The tax consequences of the various items are as follows:
1) IT-470R indicates that discounts on employer merchandise are not a taxable benefit. Hence this is not taxable.

2) It was assumed that these tuition fees are not related to "general employment-related training" as described in IT-470R. Hence, $2,000 would be a taxable benefit as it is not related to employment.

3) IT-470R indicates that uniforms or special clothing is not a taxable benefit, The $8,500 should not be included in John's income as a taxable benefit

4)$450 gift would not be taxable to John

5) ITA 6(1)(a) indicates that premiums on private health care plans are not a taxable benefit.