Principal Issues: 1) Are meal allowances, reimbursement of automobile expenses based on an amount per kilometre driven, and reimbursement of airfare for Volunteer Directors to attend meetings of the board of directors of a not-for-profit organization taxable to directors?
2) Are meal allowances paid by the organization to accompanying spouses of Volunteer Directors taxable to the Volunteer Directors? Is the conclusion the same whether or not the spouses of Directors are volunteers of the organization?
Position: General comments.
Reasons: 1) and 2) Although members of the board of directors of a corporation do not receive directors' fees, they may be considered employees of the organization because of the definition of "employee" and "office" in subsection 248(1). If, in fact and in law, they hold an office or employment, the payments or reimbursements, made primarily for their benefit, must be included in their income under paragraph 6(1)(a). Similarly, allowances for personal or living expenses or as allowances for any other purpose must be included in their income from employment unless one of the exceptions in subparagraphs 6(1)(b)(i) to (ix) applies. If the only duties performed by individuals in a corporation are as Volunteer Directors and their compensation is minimal, such compensation is not subject to tax.
XXXXXXXXXX 2009-034548 Danielle Bouffard March 11, 2010
Dear Sir,
Subject: Directors of a not-for-profit organization
This is in response to your fax of October 22, 2009, in which you requested our opinion regarding the treatment of various allowances and reimbursements paid to individuals who volunteer as directors of a not-for-profit organization ("Volunteer Directors"). We have taken into account additional information obtained in a telephone conversation (XXXXXXXXXX/Bouffard) on March 1, 2010.
Unless otherwise indicated, all legislative references herein are to the provisions of the Income Tax Act (the "Act").
Specifically, you described a situation where Volunteer Directors sit on the board of directors of a not-for-profit organization ("the Organization"). Four meetings of the board of directors are held annually at the Organization's head office.
The Volunteer Directors do not receive any attendance fees for performing their duties. They receive, among other things, reimbursement for automobile expenses they incur to attend a meeting. Reimbursements are calculated on the basis of the number of kilometres driven to the Organization's head office. The reimbursement rate is $XXXXXXXXXX per kilometre driven.
In certain exceptional cases, a Volunteer Director who lives more than 500 kilometres from the Organization's headquarters may be able to fly to the meeting. The fact that the Volunteer Director uses an airplane as a means of transportation means that the Organization has less to pay in allowances for meals, transportation and accommodation. The Organization in such a case reimburses the Volunteer Director’s airfare.
Volunteer Directors also receive allowances for meals consumed while attending a meeting of the Organization's board of directors. The meal allowances are XXXXXXXXXX for breakfast, lunch and dinner, respectively. Some Volunteer Directors are accompanied by their spouses. In such cases, Volunteer Directors also receive an allowance for meals that their spouses consumed during the trip. This spousal meal allowance is the same as that paid to a Volunteer Director. Some spouses of Volunteer Directors serve as Volunteers for the Organization while others do not.
Your Questions
1. Are meal allowances, reimbursement of automobile expenses based on an amount per kilometre driven, and reimbursement of airfare, for Volunteer Directors to attend meetings of the Organization's board of directors, taxable to directors?
2. Are meal allowances paid by the Organization to accompanying spouses of Volunteer Directors taxable to Directors? Is the conclusion the same whether or not the spouses of directors are volunteers of the Organization?
Our Comments
It appears to us that the situation described in your letter and summarized below 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 completed transactions, you should submit all relevant facts and documentation to the appropriate Tax Services Office for its opinion. However, we can offer the following general comments that may be helpful.
Generally, a director of a corporation is considered to hold an office or employment because of the definition of "employee" and "office" in subsection 248(1).
Generally, an employee must include the value of any benefits received or enjoyed in the year in respect of, in the course of, or by virtue of an office or employment under paragraph 6(1)(a). In addition, paragraph 6(1)(b) provides for the inclusion of amounts received by the employee in the year as personal or living allowances or as allowances for any other purpose unless one of the exceptions in subparagraphs 6(1)(b)(i) to (ix) applies.
Subparagraph 6(1)(b)(vii) generally excludes reasonable travel allowances (e.g., meals, hotels) received by an employee from the employer to travel, in the course of the duties of the office or employment, 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 addition, subparagraph 6(1)(b)(vii.1) generally excludes reasonable allowances for the use of a motor vehicle received by an employee from the employer for travelling in the performance of the duties of the employee's office or employment. For this purpose, an employee's travel between the employee’s principal residence and the employee’s regular place of work is considered a personal expense and does not come within this provision. An allowance may be considered reasonable if it is based on an estimate of actual expenses incurred or on a per-kilometre rate that is considered reasonable.
Although a director is generally considered to hold office, this is not the case for a director who works for a company solely on a voluntary basis. The term volunteer is not a defined term in the Act. In this regard, we must refer to the ordinary meaning of the term. The determination of the true nature of an agreement as to whether it is a contract of employment or a volunteer agreement is essentially a question of fact, which can only be answered after an analysis of the circumstances of each case, and which depends on the common intention of the parties. Normally, individuals who work on a volunteer basis receive no remuneration or at most minimal remuneration for services rendered on a volunteer basis. Generally, this minimal remuneration received by volunteers is not taxable.
For remuneration to be considered minimal, the remuneration paid to an individual must generally be significantly less than that which would have been paid to an employee or self-employed person rendering similar services. In other words, it is unlikely that minimal remuneration is sufficient to secure the volunteer's services and reflect the fair market value of the services. It should not adequately reflect the amount of work performed or the quality of the services rendered. However, where the amount of remuneration paid to a volunteer is significant enough to influence the volunteer’s participation or performance, it is likely that the remuneration would be taxable as employment or business income.
In the case of the particular situation, if the facts as a whole show that the individuals perform their duties as directors on a volunteer basis and not in the course of an office or employment or as self-employed persons, in our view, reimbursement of automobile expenses, reimbursement of airfare and meal allowances for attending board meetings (including allowances paid to cover meals for their spouses while travelling) would not be considered employment or business income if they are the only amounts received by them. However, we would reconsider this conclusion if the compensation paid to the Volunteer Directors was more than a minimal amount.
We hope that these comments are of assistance.
Best regards,
François Bordeleau, Advocate
Manager
Business and Partnerships Section
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.