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How a quiet change to the tax code became a PR problem for the Liberal government

How a quiet change to the tax code became a PR problem for the Liberal government
From CBC - October 13, 2017

A change to how the Canada Revenue Agency interprets a section of the tax law spiralled into a public relations nightmare this week that ended with a ministerial tongue-lashing for public servants and a tweet from the prime minister himself promising retail workers he would not tax their employee discounts.

How did a bureaucratic change made a year ago get to that point?

At issue is a "folio" updated by the tax collector last fall and posted on the CRAwebsite. It was a belated response to a 2011 Federal Court ruling that demanded clarity on how the Income Tax Act is applied to discounts offered to employees, which are (with few exceptions) deemed as taxable income under the act.

With the folio, the CRA advised retail employers that when an employee receives a discount on merchandise, the value of the discount should be included in the employee's income at tax time.

The whole exercisewas about "clarifying" the law, Liberal MP Marco Mendicino said Tuesday during an appearance on CBC'sPower & Politics."If you have got an employee discount that is not available to the public at any point in time, then it will be categorized as a taxable benefit," he said.

The next day two cabinet ministers were sent out to nix the move and condemn the CRA.

A spokesperson for Revenue MinisterDiane Lebouthilliersaid she was "deeply disappointed" in the bureaucrats who hatched the plan and released it without the minister's approval. The agency was ordered to take the new interpretation off the website and begin industry consultations to find a more palatable response to the court decision.

"This document was not approved by the minister and we are deeply disappointed that the agency posted something that has been misinterpreted like this," the spokesperson said.

About-face

But on Tuesday evening, one day before that public climbdown, it was Lebouthillier's office that was briefing reporters on how, exactly, the measure would be applied in the next tax year.

A spokesperson told CBC News the changes would not affect fast food or restaurant workers, for one, and that the onus would be on employers to track discounts applied on employee purchases and report that as income on employees' T4s at tax time.

"There have been no changes to the laws governing taxable benefits to retail employees. We are not targeting individuals working in retail," the minister said in a statement.

The next day, she was calling on CRA to strip the policy from its website.

'I ca not help but shake my head'

Initially, the change to the CRA advice went largely unnoticedby the media and opposition parties alikeexcept for the Retail Council of Canada, which started raising red flags with the agency and the minister's office in October2016.

Concerns about ministerial interference

@JustinTrudeau

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