Is exercising a taxable benefit?
Judging by the crowd at my gym this past week, getting fit seems to be a priority for many this January.
Some employers provide either full or subsidized health club memberships to their employees, while others have on-site gyms where employees can work out.
The perennial tax question surrounding this perk is whether the value of a gym membership you receive from your employer is considered a taxable benefit.
The Canada Revenue Agency has traditionally viewed the provision of recreational facilities by an employer as a taxable benefit in cases where the employer "pays, reimburses or subsidizes" the cost of the employee's gym membership.
There are, however, some exceptions. The CRA will generally turn a blind eye and not assess a benefit when an employer either provides an in-house recreational facility or pays for a third-party health club (where the employer holds the membership), as long as the facility or membership is available to all employees. This exception can apply even if your employer charges you a nominal fee for the use of the facilities.
In addition, the CRA has stated the value of such a benefit is non-taxable if "it can be clearly shown that membership in a club or recreational facility is principally for [the employer's] advantage rather than the employee's." The onus is both on the employer and employee to prove that the membership is primarily to the employer's advantage.
It is this last exception that has given rise to questions and confusion. What does "to the employer's advantage" mean?
A number of years ago a taxpayer wrote to the CRA arguing that the primary beneficiary of an employer-provided gym membership is the employer since the employee's good health can mean reduced stress and disability leave.
Unfortunately, the CRA didn't buy that argument and replied that "indirect benefits" to the employer, such as the employee being healthier and better able to perform his or her duties as a result of utilizing the club's facilities, is considered to be "primarily of benefit to the employee" and therefore, such a membership would be considered a taxable benefit.
On the other hand, last summer the CRA commented that if employees are required to maintain above-average fitness levels to be able to properly perform their duties, then employer-paid membership in a gym would not be taxable. The primary beneficiary in that case would be the employer.
Believe it or not, these issues do sometimes end up in court. For example, a 2004 tax case involved an employee who had his squash club dues paid for by his company. He argued that his membership was used to promote new business and entertain clients and therefore, no taxable benefit should be assessed. The judge disagreed and sided with the CRA in concluding that 75% of the fees should properly be considered a taxable benefit.