City Council unanimously supports challenging unfair reassessment by the Canada Revenue Agency |
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Since May 2008, the Canada Revenue Agency (CRA) has been conducting an Employer Compliance Audit on the City of Toronto for taxable benefits, focusing on Councillor expenses, passes and complimentary tickets, and parking for both Councillors and City staff in controlled and uncontrolled parking lots.
On April 16, 2010, the CRA concluded its audit for tax years 2006 and 2007 and issued its final assessment results to the City identifying items it intends to assess as taxable benefits. CRA’s decision will also impact years 2008, 2009 and all future years.
Last night, City Council unanimously agreed to appeal the CRA's final assessment. A motion was passed requesting the City Manager review how similar government organizations such as the Federal and Provincial governments, other municipalities and the United States Internal Revenue Service are assessed for access to parking, office expenses and other benefits. Council asked the City Manager to determine if the City was treated differently than other levels of government.
City Council also approved a program to fund the cost of any retroactive tax and interest owing for years 2006 to 2010 for employees affected by the CRA's decision that parking access at six (6) controlled parking garages (City Hall, Metro Hall, East York Civic Centre, Scarborough Civic Centre, North York Civic Centre and 111 Wellesley Street) is a taxable benefit.
Members of City Council
All City Councillors have received information on the status of their situation. The CRA confirmed that Councillors office expenses as well as Councillors parking are non-taxable. However details on the passes remain confidential as the City continues to address the CRA’s outstanding issues. The CRA has allowed the City until May 14 to provide final information to them regarding Councillors’ passes prior to making a final decision in this matter. As a result, this matter remains confidential at the present time.
The item under review by the CRA for Councillors is their passes (TTC, Sony Centre, Zoo and golf). The City has made submission to the CRA on all of these matters and final confirmation from the CRA is expected shortly after the May 14 deadline.
A total of 1,746 union and non-union City staff are being reassessed for having access to the six controlled parking garages despite requiring access for work purposes.
The City relied on the CRA's published guidelines and direction to establish a parking policy, and adhered to the CRA's direction following a 1995 audit of the former Municipality of Metropolitan Toronto.
Employees relied on this information and followed the program. In many cases, employees were required to provide a personal vehicle to perform their duties and when provided with the parking access they were not aware that it may be a taxable benefit.
Many employees never used the parking, or only on very rare occasions when they required their vehicle for work. Employees were not required to keep any records or logs to demonstrate the business use. However, the CRA has chosen to base its reassessments on the mere "opportunity" to park and not actual usage.
Although the CRA`s published guidelines for parking have remained essentially unchanged, the CRA has now changed its interpretation of the City's (and other organization’s) scramble parking situation, applying it on a retroactive basis.
The CRA defines scramble parking as "…where there are fewer parking spots than there are employees wishing to use a spot, so on any given day, whether or not an employee is able to find a parking spot is random or uncertain. There must be significantly fewer spots than employees desiring a spot." In the City's situation there are significantly more parking clearances than available spaces (i.e., at least three times more clearances than spots for each of the six controlled parking lots).
Applying this new interpretation of their scramble parking policy to prior taxation years is very unfair and places a significant financial burden on employees who were not given the opportunity to consider their options and make an informed financial decision based on the CRA’s new policy.
Program for Employees
To manage this unique situation, the City will work with staff to object to the reassessment and will also fund the tax owing and interest payable for the 2006 to 2010 taxation years.
This payment on behalf of employees is valued at $5.950 million and will be funded from the Benefits Reserve Fund. As a condition of this funding, all employees impacted by this CRA reassessment must agree to file Notices of Objection with the CRA by June 30, 2010 (to be coordinated by the City) and cooperate in proceeding with the appeals and attend any required hearings. They must also provide the City with a copy of their Notices of Reassessment and the signed Notices of Objection.
If objections are successful, the employee will reimburse the City with all funds returning to the Benefits Reserve Fund. If objections are unsuccessful, no further action will be required by employees.
The potential reassessments also impact employees’ retirement program, OMERS, as this taxable benefit would change their contributory earnings. As a result, both the City and the employees will have to make additional contributions. City employees will have to repay contributions with an estimated value of approximately $1.4 million. The cost to an individual employee will vary depending on the amount of the reassessment, ranging from about $70 per year for East York Civic Centre to $280 per year for Metro Hall.
As an employer, the cost of retroactive OMERS contributions is approximately $2.020 million. The total estimated cost of the employee program is $8.0 million.
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Media contact: Cindy Bromley, Finance and Administration Communications Manager, 416-392-4993, firstname.lastname@example.org
May 13, 2010
Canada Revenue Agency (CRA) Employer Compliance Audit - Taxable Benefits
o In May 2008, the Canada Revenue Agency (CRA) began an Employer Compliance Audit on the City of Toronto to review taxable benefits for the 2006 and 2007 calendar years. The CRA completed their audit and provided the City with a proposal letter on February 5, 2010 which identified the items and amounts that they were proposing to reassess.
o Taxable benefits that had been identified for reassessment included:
• Councillor office expenses
• Complimentary Golf passes, Zoo passes, TTC passes, Sony Centre tickets, and Toronto Parking Authority passes (for former mayors);
• Parking access in controlled lots at City Hall, Metro Hall, North York Civic Centre, Scarborough Civic Centre, East York Civic Centre, and 111 Wellesley St.
o The City had until March 15, 2010 to respond to the CRA's proposal. The City submitted a total of five (5) submissions to the CRA. Some Councillors and their staff, as well as many employees, also provided individual submissions to the CRA.
o On April 16, 2010, the CRA issued its final assessment results to the City identifying items it intends to assess as taxable benefits for tax years 2006 and 2007. The CRA’s decision also impacts 2008, 2009 and all future years.
o The CRA confirmed that Councillors' offices expenses as well as Councillors' parking are not taxable benefits. The issue of passes remains outstanding and the City has until May 14 to provide further information to the CRA.
o A total of 1,746 employees will be reassessed for 2006 and 2007 for parking access in controlled lots at City Hall, Metro Hall, North York Civic Centre, Scarborough Civic Centre, East York Civic Centre, and 111 Wellesley St. The CRA's decision will also impact those who have parked at the above spaces in 2008, 2009 and all future years.
o May 12, 2010, City Council agreed to appeal the CRA's final assessment, and approved a program to fund the cost of any retroactive tax and interest owing for years 2006 to 2010 for employees affected by the CRA's decision.
o Employees must file an objection by June 30, 2010 in order to participate in the reimbursement program. This will be coordinated through the City.
Celine Chiovitti, Director, Pension, Payroll & Employee Benefits, 416-397-4143
Cindy Bromley, Finance & Administration Communications Manager, 416-392-4993, email@example.com