Should employer-provided parking be considered a taxable benefit?

The Federal Court of Appeal has ruled that an airport parking pass provided to a flight attendant by a commercial airline is an employee benefit for the purposes of income because he received “economic value” from the pass despite the fact that the employer provided it to improve its employees’ reliability and flexibility.

“The established law asks whether the employer or the employee is the primary beneficiary of the benefit,” says Gerald Grenon, a lawyer in Osler, Hoskin & Harcourt LLP’s Calgary office, who represented the Jazz Aviation employee Mark Smith. “But the court in this case focused on whether the employee had received something of economic value.”

Although the ruling comes in the context of tax law, it also resounds in employment law. “The law regarding what constitutes an employee benefit in the employer-employee relationship has developed hand-in-hand with the tax law on the subject,” says Priya Saring, who represents employers at Toronto-based employment law boutique Sherrard Kuzz LLP. “That makes sense because employers need to know whether to report a benefit as part of an employee’s income.”

What amounts to an employee benefit can also arise, for example, on termination. “The question is whether, or the extent to which, a benefit taken away from an employee contributes to a constructive dismissal,” says Saring.

As the court recognized, whether employer-provided parking is a taxable benefit is a “difficult issue, one that has troubled tax practitioners and the courts for many years.”

In this case, the unusual facts made the determination more difficult. Smith lived in northwest Calgary, about a 25-minute drive from Calgary International Airport, located in the northeast quadrant of the city. Jazz provided him with a parking pass at the airport, where he was based. The fair market value of the pass was $504 per year.

The Canada Revenue Agency added the value of Smith’s pass to his income. However, Smith objected, arguing before the Tax Court of Canada that he received no substantial benefit from the pass and that Jazz enjoyed the practical and economic advantages flowing from its use. He noted he had to report for work outside of ordinary working hours, starting as early as 5 a.m. and ending as late as 1 a.m., at which times public transit wasn’t available.

Jazz also required Smith to work mandatory overtime without notice, to report to work on short notice and to adhere to modified shift schedules. A Jazz executive testified that the company paid for the parking passes “because it believed that doing so would make its flight attendants more reliable and flexible.”

But the tax court found the parking pass was an economic benefit of which Smith was the “primary beneficiary.” It therefore formed part of the flight attendant’s income.

Smith appealed to the Federal Court of Appeal, but lost. Arguably, however, the 21-page judgment changes the test for establishing whether an employee benefit exists. As the court saw it, the key question wasn’t whether the employee was the “primary beneficiary” but “whether the employee has received something of economic value.”

“The [primary beneficiary tests] merely assist in determining whether the employee has received or enjoyed something of economic value,” the court stated.

Here, the court found Smith had indeed received something of economic value. Pivotal to this conclusion was the fact that Jazz didn’t require its employees to have a car and that Smith didn’t use the car in the course of his employment.

“In this case, it is in my view determinative that Jazz Aviation did not require its flight attendants to commute to work by car, but was content to preserve the personal nature of employees’ commuting choices,” the court stated. “This fact demonstrates that the cost of parking at the airport was a consequence of Mr. Smith’s personal choices and not bound up in his employment duties or in the nature of his work as a flight attendant.”

According to Grenon, the issue is a good case for consideration by the Supreme Court of Canada, but no decision has yet been taken on whether Smith will seek leave to appeal to that court.

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