Principal Issues: [TaxInterpretations translation] 1) In a particular situation, are transportation allowances taxable benefits under paragraph 6(1)(b)?
2) If so, are those transportation allowances covered by paragraph 6(6)(b)?
3) In a situation where the benefits received are board and lodging allowances, would those benefits be covered by paragraph 6(6)(a)?
Position: Question of fact.
Reasons: General comments.
XXXXXXXXXX I. Landry, M. Fisc. 2011-042783
February 29, 2012
Dear Sir,
Subject: Paragraphs 6(1)(a) and (b) and subsection 6(6) of the Income Tax Act
This is in response to your letter of November 7, 2011 in which you requested our comments regarding the application of paragraphs 6(1)(a) and (b) and subsection 6(6) of the Income Tax Act (the "Act") in the context of a particular situation summarized below (the "Particular Situation").
All legislative references herein are to the provisions of the Act.
Particular Situation
The Particular Situation that you have submitted to us as we understand it can be summarized as follows:
In the context of a particular project, an employer (the "Employer") hired new employees who were assigned to a special work site within the meaning of subparagraph 6(6)(a)(i) or at a location described in subparagraph 6(6)(a)(ii).
New employees are required to provide accommodation and meals when posted to the special work site or to the location described in subparagraph 6(6)(a)(ii). On the other hand, some employees who return to their principal place of residence to spend the weekend are entitled to a transportation allowance. Those transportation allowances are not paid by the Employer. There is no employment relationship between the payor of the allowance and the employees.
Your Questions
1. Are the transportation allowances received by the employees taxable benefits under paragraph 6(l)(b)?
2. If so, do these transportation allowances come within paragraph 6(6)(b)?
3. If the employees received a board and lodging allowance instead of a transportation allowance, would those benefits come within paragraph 6(6)(a)?
Our Comments
The situation that you submitted appears to us to be an actual situation for which we cannot give you a definitive opinion. However, we are able to offer the following general comments that may be helpful to you.
Where an employee receives sums for personal and living expenses, that may result in a taxable benefit to that employee. The payment generally takes the form of an allowance or reimbursement of expenses.
Where amounts constitute a reimbursement of an employee's personal expenses, such amounts must generally be included in the computation of the employee's income by virtue of paragraph 6(1)(a) except for the benefits listed under paragraphs 6(1)(a)(i) to (v) or benefits to which subsection 6(6) applies.
Paragraph 6(1)(a) does not require the employer to provide the benefit.
The question of whether a benefit has been granted is a question of fact that can only be determined after a consideration of each particular case. However, we are of the view that there would be a benefit by virtue of paragraph 6(1)(a) if the amounts received by the employees have any connection with their employment.
Where amounts qualify as allowances, they are generally included in the employee's income by virtue of paragraph 6(1)(b) unless they satisfy the conditions of one of the exceptions set out in subparagraphs 6(1)(b)(i) to (ix) or the conditions of subsection 6(6).
Although the term "allowance" is not defined in the Act, it usually means any periodic or other payment that an employee receives in addition to the employee’s salary or wages, without having to justify its use. The allowance can be calculated according to distance or time or according to any other criterion.
Generally, subparagraph 6(6)(a)(i) provides that a taxpayer does not have to include in computing the income of the taxpayer a benefit by virtue of subsection 6(1) if that benefit represents the value of, or an allowance (not in excess of a reasonable amount) in respect of expenses the taxpayer has incurred for the taxpayer’s board and lodging for a period at a special work site. That special work site must be a location at which the duties performed by the taxpayer were of a temporary nature. In addition, the taxpayer must maintain at another location a self-contained domestic establishment as the taxpayer’s principal place of residence that was, throughout the period, available for the taxpayer’s occupancy and not rented by the taxpayer to any other person, and to which, by reason of distance, the taxpayer could not reasonably be expected to have returned daily from the special work site. There is also a requirement that the period during which the taxpayer was required by the taxpayer’s duties to be away from the taxpayer’s principal place of residence, or to be at the special work site or location, was not less than 36 hours. Paragraph 6(6)(a) does not require the employer to pay to the taxpayer the amount representing the value of the expenses incurred by the taxpayer in respect of the taxpayer’s board and lodging.
Generally, paragraph 6(6)(b) provides that a taxpayer does not have to include in computing the income of a taxpayer a benefit by virtue of subsection 6(1) if that benefit represents the value of, or an allowance (not in excess of a reasonable amount) in respect of expenses the taxpayer has incurred for transportation between the principal place of residence and the special work site in respect of a period described in paragraph 6(6)(a) during which the taxpayer received board and lodging, or a reasonable allowance in respect of board and lodging, from the taxpayer’s employer. Paragraph 6(6)(b) does not require that it be the employer who pays to the taxpayer the amount representing the value of the expenses incurred by the taxpayer for the transportation but requires that the amount of the board and lodging referred to in 6(6)(a) be paid by the employee’s employer. In addition, generally, to be reasonable, an allowance must be comparable to the actual expenses it covers.
Under the facts submitted to us in this request, the transportation allowances do not come within paragraph 6(6)(b), particularly because the employees do not receive an amount from their employer referred to in paragraph 6(6)(a).
Finally, you asked us whether an allowance for board and lodging paid in the Particular Situation could come within paragraph 6(6)(a) if the employees were receiving that type of allowance instead of an allowance for transportation.
The question of whether an allowance to cover board and lodging expenses received by a taxpayer meets the conditions for the application of paragraph 6(6)(a) is a question of fact which we cannot determine in the context of a general request. That determination can only be made in the light of an examination of all relevant facts such as the employment contract and the nature of the work.
This opinion does not concern the concept of a special work site, or what is a location referred to in 6(6)(a)(ii), and we are not expressing an opinion on those subjects.
Best regards,
Michel Lambert, CA, M. Fisc.
for the Director
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and
Regulatory Affairs Branch