No free lunch; Canadian meal-time rules are harsher than in the U.S

National Post

2015-10-14



Silicon Valley's high-tech workers may soon have to pay tax on the value of free meals and snacks, which are a common benefit provided by companies such as Google Inc., Yahoo Inc. and Facebook Inc. According to the Silicon Valley Business Journal, Google serves 30,000 meals per day at its 30-plus campus cafés in Mountain View, Calif. It also reported that the Internal Revenue Service in July 2015 released its new, annual Priority Guidance Plan, which lists the rules governing employer-provided meals as being subject to review during the coming year. Currently, under U.S. tax law, free meals provided by an employer are tax free if the meals are considered to be for "employee convenience" and are provided on the employer's premises. The key question in the U.S. is whether the employer-provided meal is primarily for the benefit of the employer or employee.


After all, the convenience of having employees easily grab a meal from the company cafeteria means that they don't have to leave the building and, presumably, will spend less time away from the desks and more time working.

Canada Revenue Agency's set of rules regarding free meals are not as generous. Under Canadian tax rules, if an employer provides a subsidized meal to an employee in its cafeteria, for example, the meal is not considered a taxable benefit if the employee pays a "reasonable charge." The CRA defines a reasonable charge as one that covers the cost of food, its preparation and service. If, however, the charge is not reasonable (or if the meal is free), then the value of the benefit is indeed taxable and is equal to the cost of the meal, less any payment the employee pays.

A 2004 court ruling found that a daily free meal provided by a casino to its employees was a taxable benefit, despite the fact that employer-imposed rules made it impossible for employees to bring their own food. There is, however, an exception for overtime meals. The CRA has stated that such meals will not be considered a taxable benefit provided the cost of the meal is "reasonable" (generally up to $17 including tax), the employee works two or more hours of overtime either right before or right after his or her scheduled hours of work, and the overtime is not frequent and is occasional in nature (usually less than three times a week).