Taxation: “Bring your own device” taxable?

“Some advisors may have a staff of their own whom they may be helping with the cost of tablets, smartphones or laptops,” says Aurèle Courcelles, director of tax and estate planning with Winnipeg-based Investors Group Inc. “It’s becoming a fact of doing business.”

The CRA’s guidance was released at the annual conference of the Canadian Tax Foundation, held in Montreal in November, in response to a question about the “bring your own device” trend in the workplace. CRA officials have indicated the policy will stand even if the device is used mostly for employment purposes.

“It has always been the view of the CRA that an employee receives an economic benefit when an employer reimburses, in whole or in part, the purchase price of an asset, including a computer or cellular phone, of which the employee retains ownership,” writes Philippe Brideau, a spokesman for the agency, in an email to Investment Executive confirming the CRA’s position. “Even if the particular asset is used partly for employment purposes, the employee has acquired an asset at a net cost equal to less than its value.”

At the conference, the CRA did suggest that if ownership of the device is ultimately transferred to the employer, a taxable benefit to the employee could be avoided. To achieve this result, any personal use of the device must be incidental.

More individuals are carrying around sophisticated digital devices that rival or surpass those that companies can provide. As a result, some employers have decided it is more convenient to transfer the responsibility of acquiring and purchasing electronic devices for the workplace to their employees, subsidizing the purchase in whole or in part rather than issuing company-purchased and -owned laptops or other devices to such employees.

Although the CRA’s policy position on BYOD programs appears to be consistent in general with the taxman’s overall policies regarding technology and the office, some tax experts and observers suggest that the CRA is being less than fair to employees, arguing that employees must own these devices to do their jobs.

“The whole policy here is misguided; it doesn’t make sense,” says Jamie Golombek, managing director, tax and estate planning, with Canadian Imperial Bank of Commerce’s private wealth-management division in Toronto. “[The CRA] is not keeping up with the times in terms of adapting traditional tax policy to the way employees are operating now.”

Although the question of who owns the device appears to be the key consideration in whether or not there’s a taxable benefit, the fact that devices purchased as part of BYOD programs are being used mostly for work purposes should have more influence on CRA policy, Golombek suggests: “What is the policy difference between allowing an employee to use a [company-owned] computer to the point of obsolescence, where it has no value, vs allowing employees to buy something that they want, with the company reimbursing them for it, and the employees using it for work purposes?”

On the other hand, the CRA, in issuing its guidance on BYOD programs, appears to be largely consistent with its overall policy regarding employees receiving an asset from employers, another tax expert suggests. Says Courcelles: “[The CRA’s] interpretation of existing policy to the BYOD trend hasn’t really strayed from its previous positions [regarding technology].”

The CRA has been challenged in recent years to issue guidance on tax issues and technology. It also has become increasingly difficult for employers — and employees — to draw the line regarding what constitutes business use vs personal use, and to determine what should be regarded as a taxable benefit.

“In practice,” Courcelles says, “personal use is tough to judge.”

However, CRA policy regarding the use of business cellphones, one of the new technologies with the longest history, appears to be more clearly defined: if an employer provides an employee with a cellphone, the business use of that device is not considered to be a taxable benefit. However, if any portion of the use of the phone is personal, then the value of that portion should be reported as a taxable benefit.

The CRA does not consider any incidental personal use of the cellular service to be a taxable benefit — as long as the service plan is a basic one with a set cost, and the employee’s personal use of the device does not result in charges that exceed the basic cost of the plan.

However, if the employer pays part or all of the cost of the handset itself but the employee retains ownership of the device, then the amount of the reimbursement is regarded as a taxable benefit to the employee.  IE