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Although the CRA said it will release a new approach for consultation, Trudeau said the result will not be a resurrection of the tax proposal.

J.P. MOCZULSKI/The Globe and Mail

Prime Minister Justin Trudeau is weighing in on Revenue Canada's fumbled plan to tax employee discounts, taking to Twitter to flatly rule out any such move by his government.

The Prime Minister's intervention comes on the heels of a disavowal on Tuesday by Revenue Minister Diane Lebouthillier's office of moves by the Canada Revenue Agency to treat employee discounts as a taxable benefit.

Although the CRA said it will release a new approach for consultation, Mr. Trudeau said the result will not be a resurrection of the tax proposal.

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Read more: Why the CRA thought it could take a bite of your free lunch

"Let me be blunt: we are not going to tax anyone's employee discounts," he wrote. "Minister @DiLebouthillier has asked the CRA to fix this."

On Wednesday, the CRA removed an interpretation bulletin known as a folio from its website after Canadian retailers warned it would have widespread implications for the relatively small employee discounts that are a common benefit to workers across the country.

The document stated that employee discounts should "generally" be reported as income, meaning they should be treated as a taxable benefit.

That contradicted another, long-standing guidebook for employers, which said that "if you sell merchandise to your employee at a discount, the benefit he or she gets from this is not usually considered a taxable benefit" provided the item is not sold below cost.

Ms. Lebouthillier's office said on Tuesday that it was "disappointed" by the CRA's decision to pursue a new approach to the taxation of employee discounts and that the agency was acting without ministerial approval.

On Wednesday, John Power, a spokesman for the minister, said the CRA will be releasing a revised bulletin and employers' guide in the future.

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"Once the agency completes their internal review of the documents, they will publish them for consultation with stakeholders," he said.

Unlike the debate on small-business rules, the Liberal government has not outlined a rationale as to why the guidelines for employee discounts require an update. Finance Minister Bill Morneau's 2017 budget included a vague reference to employee benefits and allowances that said "certain tax measures allow some individuals to pay less than their fair share of taxes on such benefits. These measures are unfair and they lack a strong policy rationale."

The budget then listed just two specific examples, pledging to eliminate a deduction for employee home-relocation loans, as well as deductions available to some municipal and provincial politicians. It did not say that other employee benefits would become taxable.

The Retail Council of Canada first publicly raised its concerns over the CRA's latest interpretation of employee discounts during a Sept. 27 appearance before the House of Commons finance committee.

The Globe and Mail spent several days seeking clarity from the CRA on the issue before publishing a story on Oct. 9.

Conservative finance critic Pierre Poilievre questions the Liberal assertion that Ms. Lebouthillier was disappointed and caught off guard by an issue that was raised in public with MPs nearly two weeks earlier.

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"Why didn't she and the government immediately seize upon that information that came to the committee and cancel that interpretation at the time?" he asked. "I think the answer is that they have signalled to CRA to go out and find money wherever they can. … That's why I don't think they reacted until they suffered the backlash; until their phone lines starting lighting up in constituency offices and their e-mail inboxes started to fill with angry waitresses and store clerks and everyday working-class wage earners."

NDP revenue critic Pierre-Luc Dusseault said the Liberals claim to be going after the rich, but in practice they're targeting small-business owners and low-income workers.

"They are mismanaging the whole issue of taxation," he said. "Low-income earners don't have the means to defend themselves."

Tax experts say it appears the CRA's actions are motivated by court rulings in 2010 and 2011 that relate to the definition of taxable benefits and how to calculate the fair-market value of benefits that are considered taxable.

The CRA regularly updates its interpretation of taxable benefits in response to court rulings and the line between what is or is not taxable is not always straightforward. For instance, an employee who receives free parking at work may have to declare that as a taxable benefit if the parking spot is solely for their use and a fair-market value can be established. However, a retail employee who parks in a large mall parking lot is not considered to have received a taxable benefit.

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