Principal Issues: [TaxInterpretations translation] Are meal allowances, paid in three specific situations, to be included in the income of employees who receive them?
Position: Questions of fact.
Reasons: Income Tax Act.
February 8, 2010
Sherbrooke Tax Services Office Headquarters Client Services Income Tax Rulings Directorate Attention: Louise Desmarais 2009-035272
Meal allowances paid to employees
This is further to your email of December 18, 2009 regarding the above subject.
Unless otherwise indicated, all statutory references herein are to the provisions of the Income Tax Act (the "Act").
Specifically, you described a situation where the XXXXXXXXXX employees of XXXXXXXXXX (the "Corporation") receive meal allowances of $XXXXXXXXXX. These allowances are paid in the following circumstances:
1. Where employees are required to respond to an overtime call, the Corporation will pay them an allowance for each normal meal period;
2. Where employees are required to work more than XXXXXXXXXX hours before or after their shift, a meal allowance will be paid;
3. Where employees work outside their regular headquarters location and do not have access to their normal eating area, the Corporation will provide a meal allowance.
You wish to know if the above allowances should be included in the income of the employees who receive them. You stated that these allowances are occasional, i.e., less than XXXXXXXXXX times per week (for overtime) and less than XXXXXXXXXX times per week for work away from the regular place of assignment.
Our Comments
Paragraph 6(1)(a) provides, inter alia, that the value of benefits of any kind whatever received or enjoyed by the taxpayer in the year in respect of, in the course of, or by virtue of, an office or employment are to be included in computing the taxpayer's income.
Meal allowances for overtime calls (item 1 above)
Normally, where a travel allowance, including a meal allowance, is paid to an employee for travelling away from the municipality or metropolitan area where the employer’s establishment at which the employee ordinarily worked or to which the employee ordinarily reported was located, in the performance of the duties of the employee’s office or employment, the Canada Revenue Agency ("CRA") considers that the allowance must be included in computing the employee's income. However, Technical News No. 40 states that such allowances will not be taxable if they are paid primarily for the benefit of the employer.
An allowance may be excluded from income where its main purpose is to ensure that the employee's duties are performed more effectively on a shift and where the allowances paid do not indicate any other form of remuneration.
Determining whether an allowance is reasonable is a question of fact. However, a reasonable allowance is generally an allowance to reimburse reasonable expenses that an employee will incur while travelling. Similarly, the CRA will review the manner in which the amount of the allowance was determined and the particular circumstances of each employee.
Meals or meal allowances provided during overtime (item 2 above)
Income Tax Technical News No. 40 sets out the CRA's policy with respect to meals and meal allowances provided to employees who work overtime. In general, the CRA considers that there is no taxable benefit in the following situations:
- the value of the meal or meal allowance is reasonable: in general, an amount up to $17 is considered reasonable;
- The employee works two or more hours of overtime right before or right after their scheduled hours of work.
- The overtime is not frequent and is occasional in nature. In general, less than three times a week will be considered infrequent or occasional. In addition, this condition may be satisfied where a meal or allowance is provided at least three times a week on an occasional basis to meet ad hoc workload requirements such as major repairs or periodic financial reporting.
The question of whether an allowance is reasonable is a question of fact. A meal allowance not exceeding $17 will be considered reasonable. However, an allowance that is higher may still be reasonable if the cost of meals in a particular location is higher or if there are certain circumstances that justify a higher amount. Where the amount of an allowance is not considered reasonable, the full amount of the allowance will be required to be included in computing the employee's income.
Therefore, unless there are compelling reasons to justify paying a meal allowance in excess of $17.00, the CRA is of the view that a meal allowance of $XXXXXXXXXX should be included in the income of the employee receiving it.
Travel meal allowances (item 3 above)
Subparagraph 6(1)(b)(vii) provides that reasonable travel allowances, other than allowances for the use of a motor vehicle, paid to employees to travel in the course of the performance of the duties of their office or employment are not to be included in computing their income to the extent that they are paid to them for travel outside the municipality or metropolitan area in which their regular place of employment is located.
An allowance may be considered reasonable if it is based on an estimate of the average travel expenses, excluding expenses for the use of a motor vehicle, that the employee is expected to incur while travelling outside the municipality or metropolitan area, as the case may be.
Information Circular IC73-21R9, Claims for Meals and Lodging Expenses of Transport Employees, defines "metropolitan area" and "municipality" as follows:
Metropolitan area is the surrounding populated area integrated with a municipality (a major urban centre and its environs).
Municipality refers to a city, town or district.
The question of whether a place constitutes the regular place of employment of an employee is a question of fact that can only be answered in light of all the relevant circumstances of a given situation. However, the 2009 Employers' Guide, Taxable Benefits and Allowances, states the following on page 29:
A regular place of employment is any location where your employee regularly reports for work or performs the duties of employment.
Similarly, the CRA's Internet site at http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/bnfts/tmbl/whnbnft-eng.html discusses the concept of regular place of employment as follows:
[TaxInterpretations translation] The question of whether a particular location constitutes a regular place of employment is a factual one that requires consideration of all the elements relevant to each case. As a general rule, the regular place of employment is any place to which or from which the employee regularly (ordinarily) reports for work. For example, if the employee performs the employee’s duties in an office, that is where the employee reports, and if the employee performs the employee’s duties in a warehouse, that is where the employee reports. The CRA may consider the regularity of the travel and the nature of the duties in determining whether a location is in fact the regular place of employment.
In short, the regular place of employment is the place where the employee, in relation to the employee’s duties, produces reports, receives instructions or information about the employee’s duties or performs other duties related to the employee’s employment. In some cases, a home office may be the regular place of employment.
Thus, with respect to meal allowances paid to employees who work outside their regular place of employment, it is necessary to determine whether the allowance is reasonable and whether it is paid while the employee is travelling in the course of performing the duties of the employee’s employment outside the municipality or metropolitan area where the employer's establishment in which the employee ordinarily works is located. These allowances are not taxable as long as all these criteria are satisfied.
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.
François Bordeleau, LL.B.
Manager
Business and Partnerships Section
Business and Partnerships Division
Income Tax Rulings Directorate.