Golf Hater wins Canada Revenue Agency Court Battle : CRA SOTW
TAX LAW: RECEIVED VALUE V. CONFERRED VALUE
Executive who hates golf wins battle over 'benefit' of course membership
PAUL WALDIE
June 18, 2008
TORONTO -- When Henry Rachfalowski joined Canada Life Financial Corp. in 1998 as a senior executive, the firm offered to pay for a golf club membership as part of his employment package. But there was just one problem: He hated golf.
Mr. Rachfalowski asked whether the company could give him cash instead or pay for a membership at a curling club. His bosses refused, saying he would look like a maverick or rebel and wouldn't fit in if he didn't join a golf club.
Mr. Rachfalowski reluctantly agreed and joined the Barrie Country Club, near his home in Midhurst, Ont. Canada Life covered the $5,000 initiation fee and the roughly $2,000 annual membership. He went to the club's dining room a few times with clients and even played a couple rounds, before giving up because he was so bad.
In 2005, the Canada Revenue Agency reassessed Mr. Rachfalowski's taxes for 2002 and included the $2,049 annual fee in his income. The CRA said it was a taxable benefit.
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Mr. Rachfalowski balked. "A golf membership for someone who hates golf and does not golf is not a benefit," he argued. "The value of something that is received can be much different than the value conferred."
The CRA wouldn't budge. The membership fee was a "perk, a symbol, and a demonstration that rank has its privileges in the corporate structure; it provided you with an economic benefit," the agency told him. "The courts have established that a benefit is a benefit even when unilaterally conferred. Therefore, the fact that you did not like golfing should not be determinative."
Mr. Rachfalowski took his case to the Tax Court of Canada. During a hearing in April before Mr. Justice Donald Bowman, Mr. Rachfalowski argued that Canada Life benefited from the membership, not him.
"Moreover, declining the membership would have put [Mr. Rachfalowski] at odds with his boss and his peers, all of who had accepted the benefit," he explained, according to court filings.
Lawyers for the CRA said the membership was for Mr. Rachfalowski, not the company, and it didn't matter whether he disliked golf, the mere availability of the benefit was enough for it to be taxed.
The hearing also examined the definitions of "enjoy," "benefit" and "receive."
In the end, Judge Bowman sided with Mr. Rachfalowski and ordered the CRA to exclude the membership fee from his 2002 income.
In his ruling, released this week, Judge Bowman reviewed several employee benefit cases and said they all came down to one question: "Just what did the employee get out of the alleged benefit that ought to increase his or her income?"
Not much in Mr. Rachfalowski's case, the judge found.
From Mr. Rachfalowski's "point of view, the membership was clearly not an advantage to him. He did not even want it," the judge said in his ruling. "It is a fair inference that the employer wanted its senior executives to belong to a golf club. It enhanced the company's image and prestige and provided a place for its executives to entertain clients of the company. I do not think the employer's insistence that he join a golf club (or at all events, the very strong pressure the employer put on him to do so) is particularly attributable to paternalistic altruism. Objectively, I think the membership in the golf club was primarily for the benefit of the employer."
Mr. Rachfalowski left Canada Life in 2003 after it was taken over by Great-West Lifeco Inc.
When asked to comment on the case and his view of golf, Mr. Rachfalowski laughed and replied: "I would prefer not to enhance the notoriety of this at all."
A spokeswoman for the CRA declined to comment on the case but said the decision will not be appealed.
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Pop the link below into your browser to view the entire CRA SOTW Library!
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Alan Baggett – Tax Collector’s Bible
TAX LAW: RECEIVED VALUE V. CONFERRED VALUE
Executive who hates golf wins battle over 'benefit' of course membership
PAUL WALDIE
June 18, 2008
TORONTO -- When Henry Rachfalowski joined Canada Life Financial Corp. in 1998 as a senior executive, the firm offered to pay for a golf club membership as part of his employment package. But there was just one problem: He hated golf.
Mr. Rachfalowski asked whether the company could give him cash instead or pay for a membership at a curling club. His bosses refused, saying he would look like a maverick or rebel and wouldn't fit in if he didn't join a golf club.
Mr. Rachfalowski reluctantly agreed and joined the Barrie Country Club, near his home in Midhurst, Ont. Canada Life covered the $5,000 initiation fee and the roughly $2,000 annual membership. He went to the club's dining room a few times with clients and even played a couple rounds, before giving up because he was so bad.
In 2005, the Canada Revenue Agency reassessed Mr. Rachfalowski's taxes for 2002 and included the $2,049 annual fee in his income. The CRA said it was a taxable benefit.
Print Edition - Section Front
Enlarge Image
Mr. Rachfalowski balked. "A golf membership for someone who hates golf and does not golf is not a benefit," he argued. "The value of something that is received can be much different than the value conferred."
The CRA wouldn't budge. The membership fee was a "perk, a symbol, and a demonstration that rank has its privileges in the corporate structure; it provided you with an economic benefit," the agency told him. "The courts have established that a benefit is a benefit even when unilaterally conferred. Therefore, the fact that you did not like golfing should not be determinative."
Mr. Rachfalowski took his case to the Tax Court of Canada. During a hearing in April before Mr. Justice Donald Bowman, Mr. Rachfalowski argued that Canada Life benefited from the membership, not him.
"Moreover, declining the membership would have put [Mr. Rachfalowski] at odds with his boss and his peers, all of who had accepted the benefit," he explained, according to court filings.
Lawyers for the CRA said the membership was for Mr. Rachfalowski, not the company, and it didn't matter whether he disliked golf, the mere availability of the benefit was enough for it to be taxed.
The hearing also examined the definitions of "enjoy," "benefit" and "receive."
In the end, Judge Bowman sided with Mr. Rachfalowski and ordered the CRA to exclude the membership fee from his 2002 income.
In his ruling, released this week, Judge Bowman reviewed several employee benefit cases and said they all came down to one question: "Just what did the employee get out of the alleged benefit that ought to increase his or her income?"
Not much in Mr. Rachfalowski's case, the judge found.
From Mr. Rachfalowski's "point of view, the membership was clearly not an advantage to him. He did not even want it," the judge said in his ruling. "It is a fair inference that the employer wanted its senior executives to belong to a golf club. It enhanced the company's image and prestige and provided a place for its executives to entertain clients of the company. I do not think the employer's insistence that he join a golf club (or at all events, the very strong pressure the employer put on him to do so) is particularly attributable to paternalistic altruism. Objectively, I think the membership in the golf club was primarily for the benefit of the employer."
Mr. Rachfalowski left Canada Life in 2003 after it was taken over by Great-West Lifeco Inc.
When asked to comment on the case and his view of golf, Mr. Rachfalowski laughed and replied: "I would prefer not to enhance the notoriety of this at all."
A spokeswoman for the CRA declined to comment on the case but said the decision will not be appealed.
-----------------------------------------------------------------------------------------------------
Miss a Tax Tale Miss a lot!
Pop the link below into your browser to view the entire CRA SOTW Library!
http://canada.revenue.agency.angelfire.com
-------------------------------------------------------------------------------------------------------
Alan Baggett – Tax Collector’s Bible