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May 19, 2024

Tax Tips

Employee Benefits
Subject: Employee Benefits
Number: 04-03
Date: 1/23/2004
Free Meals and Gifts

There was a recent case (McGoldrick), which dealt with employee benefits. The taxpayer worked at Casino Rama, which provided him with one free meal per shift along with other perks such as free entertainment events and free hams and turkeys on holidays. The employer provided one meal per shift at no charge to employees at a café. Employees were generally not allowed to bring food onto the premises for sanitation reasons and Casino Rama's location made it impractical to eat offsite. Moreover, employees were not allowed to leave the premises during shifts without permission. A company representative testified that the provision of meals was for the employer's benefit as it enhanced the attractiveness of the casino. As an aside, the taxpayer stated that he did not like eating at the café but because there was no alternative he ate there on most days.

Casino Rama included a taxable benefit to the taxpayer for the cost of the meals. The taxpayer argued that the provision of free meals was essentially a reimbursement for depriving him of his right to bring food to work.

The judge stated that the courts have attempted to recognize that where something has been provided to an employee primarily for the benefit of the employer, it will not be a taxable benefit if any personal enjoyment is merely incidental to the business purpose. The judge stated in this case that because there was no reimbursement for expenses that this case was different from those where the reimbursement was to make the taxpayer whole. He then concluded that the taxable benefit was properly calculated and should be included in the taxpayer's income.

This is an important lesson in those situations where employees are provided things at no cost. Where food is provided to employees on a reimbursable basis, it would appear that there is a strong argument that this is not a taxable benefit. Where, however, food or other items are being provided at no cost to the employee where there is a benefit to the employee, it appears that the courts feel that there is a taxable benefit to the employee.

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