Principal Issues: [TaxInterpretations translation] In the situations described, are allowances received by employees required to be included in computing their income under paragraph 6(1)(b)? If so, is a deduction under paragraph 8(1)(h.1) available?
Position: The allowances are taxable and no deduction is allowed under paragraph 8(1)(h.1).
Reasons: In both situations, travel is not undertaken in the performance of the duties of an office or employment.
January 25, 2010
Shawinigan-South Tax Service Office Income Tax Rulings Directorate Observation - Quebec referrals Pierre-Luc Meunier Attention: Rachel Baril 2009-034550
Travel between employees' homes and workplaces
This is further to your email of October 26, 2009, in which you requested our opinion on the tax treatment of certain allowances paid to employees of a railway company and on the appropriateness of travel expense deductions claimed by employees of the railway company.
Unless otherwise indicated, all legislative references herein are to the provisions of the Income Tax Act (the "Act").
Specifically, you described two distinct situations for which you would like us to provide comments.
First situation
The employer provides an allowance, which it considers non-taxable, to employees who accept temporary assignments away from their regular post, to cover commuting expenses between home and the new location. This new posting was obtained as a result of representations made by the employee, who, for the duration of the new assignment, is no longer required to travel to the employee’s former regular post. The allowance is paid at a rate of $XXXXXXXXXX per kilometre travelled. The employee is not paid during such travel. The location of the new assignment is assumed to be the employee's regular place of employment for the duration of the assignment.
Second situation
The employer pays an allowance that it considers to be tax-free to employees assigned to maintenance and repair of tracks to enable them to return home on weekends and to return at the beginning of the week. This allowance of $XXXXXXXXXX per kilometre travelled is paid because the work site is too far away for the employees to return home after their work day. It is assumed that track maintenance and repair duties require employees to be away from their principal place of residence for a period of at least 36 hours.
Some employees are taxing themselves on this type of allowance, considering it unreasonable since it does not cover travel expenses actually incurred. They then claim a deduction in computing their employment income under paragraph 8(1)(h.1). The employee is not remunerated when the employee travels between home and work.
Our Comments
An allowance for the use of a motor vehicle paid by the employer to an employee, whose employment is not related to the selling of property or the negotiating of contracts, is generally taxable under paragraph 6(1)(b) unless it satisfies the conditions set out in one of the following provisions of the Act: subparagraph 6(1)(b)(vii.1), subsection 6(6) or subsection 81(3.1).
To qualify for the exception in subparagraph 6(1)(b)(vii.1), the employee must receive a "reasonable" allowance for travel "in the performance of the duties of the office or employment". In this case, it is not necessary to determine whether the allowance is reasonable since, in our view, in both of the situations presented, the employees are not travelling in the performance of the duties of their employment.
The question of whether an employee's travel is in the performance of the duties of an office or employment is a question of fact. Generally, the CRA considers travel between an employee's home and work to be of a personal nature. In the absence of services rendered to the employer during the period of travel, the employee does not travel in the performance of the employee’s duties, but rather to travel to the employee's place of employment where the employee will be able to perform the employee’s duties.
In the first situation you presented to us, the allowance is paid by the employer to enable the employee to travel between home and work. In the absence of additional factors, we are of the view that this allowance should be added to the employee's income from an office or employment under paragraph 6(1)(b).
An employee who must include such allowances in computing income would not be able to claim a deduction under paragraph 8(1)(h.1) since the motor vehicle expenses were not incurred in the performance of the duties of an office or employment.
Finally, an employee in the first situation does not appear to satisfy all the criteria for the exemption in subsection 6(6) dealing with employment at a special work site or remote work location.
We wish to bring to your attention that it would be possible to exempt the allowance received in the first situation from the income of a part-time employee of the corporation if the following conditions under subsection 81(3.1) are satisfied:
- The allowance received by the employee is reasonable;
- The part-time employee and the employer deal with each other at arm's length;
- Throughout the period in which the expenses to get to the work location were incurred, the employee had other employment or was carrying on a business;
- The duties of the part-time employment were performed at a location not less than 80 kilometres from both the employee's ordinary place of residence and the place of the employee's other place of employment or business.
With respect to the second situation for which you are seeking our comments, the CRA considers the employee's travel between work and home on weekends to be of a personal nature. Therefore, allowances received in this regard, notwithstanding the application of subsections 6(6) or 81(3.1), should be included in computing income from an office or employment under paragraph 6(1)(b). An employee in such a situation would not be able to claim a deduction for motor vehicle expenses under paragraph 8(1)(h.1) since the expenses were not incurred in the performance of the duties of an office or employment.
The facts available to us, however, suggest that the allowance received in the second situation could be excluded from the computation of income from an office or employment since it may satisfy the conditions of subparagraph 6(6)(b)(i).
Subparagraph 6(6)(b)(i) generally allows an employee to exclude from income a reasonable allowance received by the employee for transportation expenses incurred between a special work site and the employee's principal place of residence.
Based on the information currently available to us, assuming that track maintenance and repair duties require employees to be away from their principal place of residence for a period of at least 36 hours, it would appear that the distance between employees' principal place of residence and their place of work makes it unreasonable to expect them to commute between these two locations on a daily basis.
However, before it can be concluded that the transportation allowance paid by the employer in this situation falls within the exemption in subparagraph 6(6)(b)(i), the following conditions must all be satisfied:
- The principal place of residence is a self-contained domestic establishment that has remained available to the employee during the period of employment.
- The employee's duties at the special work site are only temporary.
- The transportation allowance is for a period for which the employee received board and lodging, or a reasonable allowance for board and lodging, from the employer.
For more details on the application of this provision, refer to Interpretation Bulletin IT-91R4, available at http://www.cra-arc.gc.ca/E/pub/tp/it91r4/READ-ME.html.
Access to Information
For your information, unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, the electronic library version can be provided. Alternatively, the client may request a severed copy using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Ms. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.
We hope that these comments are of assistance.
Best regards,
François Bordeleau, LL.B.
Manager
Business and Partnerships Section
Business and Partnerships Division
Income Tax Rulings Directorate.