Having Their Cake: Small-Business Owners Can Be Reimbursed For Their Overtime Meals
Court Rules Small-Business Owners Can Be Reimbursed For Their Overtime Meals
If your business regularly provides employees with overtime meals or allowances for overtime meals, the Canada Revenue Agency's administrative position is that there is no taxable benefit if three conditions apply.
First, the allowance, or the cost of the meal, must be "reasonable." The CRA generally considers a value of up to $17 per meal to be reasonable, although it will consider higher amounts if the relative cost of meals in that location is higher or if there are other extenuating circumstances. Second, the employee must work two or more hours of overtime either right before or right after his or her scheduled hours of work. Finally, the overtime must not be frequent in nature, which the CRA interprets to mean less than three times per week. When overtime occurs more frequently than that or becomes the norm, the CRA can consider the overtime meals or allowances to be a taxable benefit, since they are akin to additional employer remuneration.
But what if a small-business owner charges personal overtime meals to the company credit card when working overtime? Do the same rules apply? That question was addressed in a recent Tax Court case involving Gordon and Susan McIntosh, who operated an auto detailing business through their wholly-owned corporation, Quick-Clean Inc., and were its only two employees. Approximately 500 cars were serviced during the two years at issue and the nature of the business required the McIntoshes to work irregular hours, including nights and weekends.
For the 2007 and 2008 taxation years, the CRA reassessed them for $1,200 and $800 each, plus GST, in shareholder benefits for the value of overtime meals paid for by their corporation. Most of the expenses in question involved restaurant meals the McIntoshes consumed outside normal work hours and involved circumstances where they had to return to work after the meal. The CRA took the view that these expenses were incurred to benefit each of them in their capacity as shareholders and that they were not incurred for the purpose of earning business income.
The judge disagreed and found the CRA's assumption to be "incorrect." As the judge wrote, "The expenditures were incurred in order to benefit Quick-Clean's business in the same manner that any corporation agrees to reimburse arm's length employees for meals consumed while working overtime. The meals were provided to the (McIntoshes) in their capacity as... employees... The expenditure was not paid in their capacity as shareholders."