Principal Issues: [TaxInterpretations translation] Is an allowance paid to employees for their travel within the municipality or metropolitan area where their usual place of work is located to be included in the calculation of their income?
Position: Question of Fact. In this case, it would appear not.
Reasons: As stated in Technical News No. 40, a reasonable travel allowance (including meal allowances) paid by an employer for travel within the municipality or metropolitan area may be excluded from income. In fact, starting in 2009, the CRA will accept that those allowances paid for travel within the municipality or the metropolitan area may be excluded from income if the primary purpose of the allowance is to ensure that the employee's duties are undertaken in a more efficient manner during the course of a work shift, and where allowances paid are not indicative of an alternate form of remuneration.
XXXXXXXXXX 2011-040014 September 27, 2011
Subject: Meal allowances
Dear Sir,
This is in response to your letter of March 17, 2011 in which you asked for our opinion on the above subject.
Unless otherwise indicated, all statutory references herein are to the provisions of the Income Tax Act (the "Act").
In particular, you described a situation where employees are called upon to travel within the municipality or metropolitan area where their usual place of work is located to meet clients of the employer's business.
In order to avoid wasting time and to reduce the amount of travel expenses, the employer pays those employees a daily meal allowance of $17 per day worked so that employees can remain on the road and thus be more efficient. From what we understand, the meal allowance is paid for all days worked, including those where employees are not traveling.
You wish to know the tax treatment to be granted to that allowance.
Our Comments
As stated in paragraph 22 of Information Circular 70-6R5 dated May 17, 2002, it is the practice of the Canada Revenue Agency (the "CRA") not to issue a written opinion regarding proposed transactions otherwise than through advance rulings. Furthermore, when it comes to determining whether a completed transaction has received adequate tax treatment, the determination is made first by our Tax Services Offices as a result of their review of all facts and documents, which is usually performed as part of an audit engagement. However, we can offer the following general comments that we hope may be helpful to you. However, these comments may not apply to your particular situation under certain circumstances.
Paragraph 6(1)(b) provides that there must be included in computing the income of a taxpayer for a taxation year as income from an office or employment amounts received as a personal or living allowance or as allowances for any other purpose. As an exception to this rule, subparagraph 6(1)(b)(vii) provides that reasonable allowances for travel expenses (other than allowances for the use of a motor vehicle) received by an employee (other than an employee employed in connection with the selling of property or the negotiating of contracts for the employer) received from the employer for travelling in the performance of the duties of the employee’s office or employment are not to be included in computing the employee's income. It should be noted that allowances must be received for travel away from:
(A) the municipality where the employer’s establishment at which the employee ordinarily worked or to which the employee ordinarily reported was located, and
(B) the metropolitan area, if there is one, where that establishment was located,
However, as announced in Income Tax Technical News No. 40, Administrative Policy Changes for Taxable Employment Benefits, in certain circumstances, a travel allowance paid by the employer in respect of travel within the municipality or metropolitan area of an employee for the purpose of the performance of the duties of the employee’s office or employment may be excluded from income if the following conditions are satisfied:
- the allowance is reasonable;
- the allowance is paid primarily for the benefit of the employer.
An allowance may be considered reasonable if it is based on an estimate of average travel expenses, with the exception of the costs for the use of a motor vehicle, which the employee would be required to incur during travel. If an allowance is not calculated based on the actual costs incurred by the employee, which implies some control over the merits of employee claims by the employer, the CRA would be inclined to consider that the allowance is not reasonable.
Also, an allowance would be paid primarily for the benefit of the employer if the principal objective of the allowance is to ensure that the employee's duties are undertaken in a more efficient manner during the course of a work shift, and where allowances paid are not indicative of an alternate form of remuneration.
In such a case, we are generally of the view that the allowance of $17 paid for the days during which the employees are travelling should not be included in computing the income of the employees who receive it. However, they should include in computing their income the allowance of $17 they receive while they are not travelling, as that allowance is not based on an estimate of the average travel expenses they incur.
We hope that these comments are of assistance.
Best regards,
François Bordeleau, Advocate
Manager
Business and Partnerships Section
Income Tax Rulings Directorate