Principal Issues: [TaxInterpretations translation] What is the tax treatment of an allowance for the expenses for board and lodging at a special work site or remote location where the taxpayer owns a second home at the special work site?
Position: Question of fact.
Reasons: Application of subsection 6(6)
XXXXXXXXXX 2010-038218
April 11, 2011
Dear Sir,
Subject: Employment at a special work site
This is in response to your letter of September 25, 2010 in which you requested our opinion regarding the tax treatment of an allowance for board and lodging expenses at a special work site or remote location.
Specifically, you described a situation where you own a home ("Property A") that is more than 300 kilometers from the work site. That property has remained at your disposal throughout the reference period and has not been rented to another person. You also own a property ("Property B") in the city where the site is located or at a distance that allows you to commute daily between that residence and the site.
You wish to know if the allowance you receive while working at the work site must be included in your income under paragraph 6(1)(a) of the Income Tax Act (the "Act") ) or if the allowance received satisfies the requirements of subsection 6(6) so as not to be included in computing your income.
Unless otherwise indicated, all statutory references herein are to the provisions of the Act.
Our Comments
It appears to us that the situation described in your letter and summarized above could constitute an actual situation involving taxpayers. As explained in Information Circular 70-6R5, it is not the practice of this Directorate to provide comments on proposed transactions involving specific taxpayers otherwise than in the form of an advance income tax ruling. If your situation involved specific taxpayers and one or more transactions, you should submit all relevant facts and documents to the appropriate tax services office ("TSO") for their opinion. However, we are able to offer the following general comments that may be helpful to you.
Pursuant to paragraph 6(1)(a), the value of board, lodging and other benefits of any kind whatever received or enjoyed by the taxpayer in the year shall be included in computing the income of a taxpayer for a taxation year as income from an office or employment.
Generally, subparagraph 6(6)(a)(i) provides that there does not have to be included in computing the income of a taxpayer a benefit under subsection 6(1) if that benefit represents the value of an expense or an allowance (not in excess of a reasonable amount) for expenses for board and lodging for a specified period of time 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.
As a general comment, the purpose of subparagraph 6(6)(a)(i) is to recognize that where an employee is required to work temporarily in a workplace located at a significant distance from where the employee usually resides, it would not be reasonable to expect the employee to dispose of the employee’s current residence and move to the new location for a short period of time. In addition, this subsection recognizes that where an employee continues to incur expenses in order to maintain the employee’s principal place of residence without earning rental income, a benefit is not conferred on the employee if the employer makes available to the employee, or reimburses expenses incurred in connection with, a temporary residence at the special work site. In addition, in our view, an employee can only have one principal place of residence.
The question of whether an allowance to cover housing expenses paid to an employee by the employer meets the exception in subsection 6(6) is a question of fact upon which we cannot make a determination in the context of a general request. That determination can only be made in light of an examination of all relevant facts such as, for example, the employment contract, the nature of the work or the nature of the employee's travel. In addition, it should be noted that, generally, to be reasonable, an allowance must be comparable to the actual expenses it covers.
To determine whether subparagraph 6(6)(a)(i) applies to your situation, it is therefore necessary to assess the following:
- Was the work that you performed at the work site of a temporary nature?
- Did you live elsewhere and as your principal place of residence maintained a self-contained domestic establishment that was at your disposal throughout the period and not rented to another person?
In this situation, although we find it unusual for a worker to solve a temporary housing problem by buying rather than renting, we have assumed that the work you performed at the special work site was work of a temporary nature.
The question of whether you have a self-contained domestic establishment elsewhere that is a principal place of residence is a question of fact. That question can be answered by examining the following factors, which are not exhaustive:
- What was your family's place of residence while you were working on the special work site?
- At what time did you acquire the self-contained domestic establishment near the special work site?
- Where would you have stayed if you were not employed at the special work site?
- What will happen to the self-contained domestic establishment near the special work site when your employment at the special work site ends?
In this situation, the application of subparagraph 6(6)(a)(i) rests on determinations of fact. Thus, the allowance you receive for board and lodging may be excluded from computing your income only if your work at the special work site is of a temporary nature, if your Property A is a self-contained domestic establishment considered as your principal place of residence and if all other conditions for the application of subparagraph 6(6)(a)(i) are satisfied.
These comments do not constitute an advance income tax ruling and are not binding on the CRA with respect to a particular factual situation.
We hope that the above comments will be of assistance and will answer your questions.
Best regards,
François Bordeleau, Advocate
Manager
Business and Partnerships Section
Income Tax Rulings Directorate.