Tee'd off about benefits

National Post


A non-golfer beats the CRA at the taxable benefits game

With golf season in full swing, the issue of the taxability of golf club membership dues paid by an employer is once again teeing off. A tax case decided last month provides some guidance as to whether such dues are considered to be a taxable employment benefit.

Henry Rachfalowski joined Canada Life in 1998 as a vice-president, responsible for U. S. investments. As part of his executive compensation package he was offered a paid membership in a golf club of his choice.

Mr. Rachfalowski was not a golfer, so he asked Canada Life if he could instead have the cash equivalent of the initiation fee and annual membership fees or, alternatively, a free membership in a curling club.

Canada Life refused to grant either request, so he asked if he could decline the golf club membership altogether. He was told that it would "draw attention to himself and [he] would look like a maverick or a rebel."

So, Mr. Rachfalowski reluctantly accepted a membership in the Barrie Country Club. The initiation fee of $5,000 and annual dues of slightly more than $2,000 were paid by Canada Life.

In 2002, for the first time, Mr. Rachfalowski was required to pay tax on the annual golf dues paid for by his employer. He disputed this and it wound its way to Tax Court, where he argued that he should not have to pay tax on the $2,000 "benefit" as he "hated golf, could not golf and did not golf."

In fact, he only rarely used the club and when he did so, it was either for Canada Life staff events or to entertain business contacts on behalf of the company. As a result, he felt that the club membership was of no personal value to him and thus should not be included in his income as a taxable employment benefit.

Not surprisingly, the Canada Revenue Agency disagreed, arguing that since the golf club membership was provided as part of Mr. Rachfalowski's benefits package, it was a perk that provided him with an economic benefit.

Since there was no limitation on his personal use, he could use it any time he wanted; therefore the benefit of being a member was "something enjoyed by [Mr. Rachfalowski] and did not flow to [his] employer," the tax department argued, while insisting the full value of the membership should be a taxable benefit.

The case was heard by Chief Justice Donald George Hugh Bowman of the Tax Court, who is retiring next month. Judge Bowman narrowed the case down to one basic question: Was the golf membership that Mr. Rachfalowski received truly a benefit to him?

Employing his unique writing style, which will be sorely missed by the professional tax community after his retirement, Judge Bowman stated: "I do not think the employer's insistence that [Mr. Rachfalowski] join a golf club … is particularly attributable to paternalistic altruism."

The Judge concluded that Mr. Rachfalowski's membership in the golf club was primarily for the benefit of Canada Life, and thus should not be a taxable benefit. The CRA was ordered to reassess his claim accordingly.