Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
various relating to perks received by politicians, accountability for expenses (issue of tax free allowances etc.)
legal costs incurred as a result of an action by an employee/officer as part of duties of the employ and paid for by the employer, do not usually result in a benefit to the 'ee. Where personal travel expenses of a MP (or family member) are borne by the gov't of Cda, a benefit subject to tax is rec'd. Upon leaving office, a departing prime minister is required to leave behind that property which rightfully belongs to the Crown. Income (including benefits) from the office of the Governor General is exempt. An MP must follow the same rules as other t/ps in determining whether they can deduct expenses incurred as a result of their office. In the case of an MP, it would be necessary to prove that an expenditure was incurred over and above any reimbursement or tax-free allowance.
REASONS FOR POSITION TAKEN:
DM'S OFFICE (2) 94-03548M, 94-02209M, 94-04414M,
ADM'S OFFICE (3) 94-01223M, 94-0747D, 94-05656M
RETURN TO RULINGS, ROOM 303, MET. BLDG.
SUBJECT OR CORPORATE FILE
The Honourable David Anderson, Minister of National Revenue, has asked me to respond to your letters of January 31, February 28, March 31, April 29, May 18, 1994, and June 7, 1994, concerning the taxation of members of Parliament and benefits received or enjoyed by the incumbent of the position of Governor General of Canada. I apologize for the delay of my reply.
You have requested a response to a number of issues which I shall address in the order presented in your correspondence.
The confidentiality provisions of the Income Tax Act preclude the Department from discussing the tax affairs of any specific individual without his or her authorization. However, I can offer the following general comments relating to the payment of legal fees on behalf of a member of Parliament. Where a personal expense is incurred by an officer or employee and paid for by the employer, a taxable benefit normally accrues to the employee or officer unless it can be determined that the primary benefit of the expense is derived by the employer. Where legal costs are incurred as a result of an action by an employee or officer as part of the discharge of the duties of the office or employment, in most cases, no real benefit is considered to accrue to the employee or officer.
Where personal travelling expenses of a member of Parliament (or the member's spouse or other family members) are borne by the Government of Canada, then a benefit subject to taxation is conferred on that member.
The third matter you raised on January 31 is the issue of political parties compensating the incumbent prime minister both in terms of cash remuneration and through the purchase of furniture for use in the Prime Minister's residence. Where an amount is received by a prime minister or other member of Parliament from a political party, the payment is usually subject to tax as a benefit received in the course of an office unless the amount received represents a reimbursement of an amount incurred in the performance of the duties of the office. While a political party is not prohibited from purchasing furniture for the Prime Minister's official residence either through a gift to the National Capital Commission, the Official Residences Council, the Canadiana Fund, or to the Prime Minister directly, I am advised that the majority of the furnishings for the official residences in the National Capital Region are supplied by the National Capital Commission and that many of these furnishings and works of art are displayed in the public or state areas of the official residences. Upon leaving office, the departing prime minister is required to leave behind that property which rightfully belongs to the Crown. Personal belongings obviously remain the property of the individual.
Your correspondence of February 28 relates entirely to benefits received by the incumbent of the position of the Governor General of Canada. Income from the office of the Governor General of Canada is exempt from taxation by virtue of a provision in the Income Tax Act. This provision has remained unchanged since its enactment well over half a century ago. Your letter notes that the Governor General is required to use military aircraft for all air travel for security reasons. Where the use of military aircraft for personal air travel results in a personal benefit to the recipient, the exemptive legislation applicable to income received from the office of the Governor General applies to exempt such benefits from taxation. However, income from other sources received by the incumbent of the position of Governor General, such as rental income or interest income, is subject to tax in accordance with the law.
Your letter of March 31, 1994, addresses the issue of accountability for expenses by elected officials. Members of the House of Commons receive a sessional allowance or salary plus an expense allowance under the authority of the Parliament of Canada Act. The Income Tax Act specifically excludes from the calculation of income any travelling, personal or living expense allowances which are expressly fixed in an Act of the Parliament of Canada. Similarly, an allowance received by a member of a provincial legislative assembly or by an elected municipal officer for expenses incidental to the discharge of that person's duties is not taxable, except to the extent that the allowance exceeds one-half of that person's salary or other remuneration. These provisions have existed in the Income Tax Act for several decades. The purpose of the allowances is to help defray job-related expenses incurred by elected officials.
In regard to the additional questions you asked on May 18, as stated
above, any payment made to a member of Parliament by a political party is
subject to tax as a benefit received in the course of an office unless the
amount received represents a reimbursement of an amount incurred in the
performance of the duties of the office. Where
a member has been reimbursed for an expense that has been incurred in the
performance of the duties of the office, that reimbursement is not included in
the member's income. Hence, no
deduction can be claimed by the member on his or her tax return with respect to
the reimbursed expenditure. A
member of Parliament must adhere to the same income tax requirements as any
other taxpayer in determining whether an expense may be deducted in calculating
income from an office or employment. This
includes, among other things, that the contract of employment specify that the
individual is required to pay the expenses.
If an individual is able to satisfy all the applicable requirements for
deducting an amount from the income from an office or employment, then that
individual would be permitted a deduction to the extent that he or she has not
already been reimbursed or otherwise compensated with respect to the expense.
In other words, in the case of a member of
Parliament, it would be necessary to establish that the expenditure was incurred
over and above any reimbursement or tax-free allowance received to help the
member offset the costs of carrying out the duties of a parliamentarian.
After each federal election, the remuneration package of members of Parliament is reviewed by a Commission, as is required by law. The Commission to Review Allowances of Members of Parliament is chaired by the Honourable Charles LaPointe. Should you wish to offer your comments and suggestions regarding tax-free allowances, accountability for expenses, basic remuneration levels and other issues to the Commission, you may do so by writing to: Post Office Box 1790, Station B, Ottawa, Ontario, K1P 5R5. It is my understanding that the Commission must finalize its report by July 13, 1994. It will be tabled in the House of Commons sometime after September 19, 1994, with copies of the report to be available at a later date in government publication centres across the country.
I appreciate being made aware of your concerns and trust that the information provided will be helpful.
Pierre Gravelle, Q.C.
June 22, 1994