Principal Issues: [TaxInterpretations translation] Can there be a taxable benefit for XXXXXXXXXX employees when the employer pays them a travel allowance where an employee takes a new job in another city?
Reasons: None. Question of fact. Taxable or not taxable depending on the particular facts of a given case.
2005-016334 XXXXXXXXXX Anne Dagenais, M. Fisc. (613) 957-2121 April 26, 2006
Dear Madam,
Subject: Housing - taxable benefit
Request for technical interpretation
This is in response to your letter of December 12, 2005, in which you requested our opinion on specific situations.
Unless otherwise indicated, all statutory references herein are to provisions of the Income Tax Act (the "Act").
Facts
1. Where an employee takes a new job in another city and retains the individual’s residence, you informed us that you reimburse the employee’s travel and accommodation expenses and meals. You asked if the reimbursement of the employee’s accommodation is a taxable benefit.
2. Where an employee takes a new job in another city but does not retain the residence, you asked if the reimbursement of those expenses for accommodation and meals is a taxable benefit.
3. If the employment is for a 2-year assignment and you reimburse the employee’s accommodation expenses, you asked if that is a taxable benefit.
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 by way of advance rulings. Furthermore, when it comes to determining whether a completed transaction has received appropriate tax treatment, that 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. These comments may, however, under certain circumstances, not apply to your particular situation.
The general principle is that an individual must include in the individual’s income from an office or employment “the value of board, lodging and other benefits of any kind whatever received or enjoyed by the taxpayer in the year”. It follows that where the employer pays the employee's personal and living expenses, a benefit to the employee results. Generally, the payment is in the form of an allowance or reimbursement of expenses.
If that is the case, the tax treatment may differ depending on the type of reimbursement or allowance and the particular facts of the situation.
Although the term "allowance" is not defined in the Act, it means any periodic or other payment that an employee receives from the employee’s employer, in addition to salary or wages, without having to justify its use. The allowance may be calculated on the basis of distance or time (for example, a motor vehicle allowance based on distance travelled or a living allowance based on the cost of living in Canada) or on any other basis.
Where amounts are reimbursed for the employee's out-of-pocket expenses, those amounts must be included in computing the employee's income by virtue of paragraph 6(1)(a) unless subsection 6(6) applies.
Where amounts qualify as allowances, they are generally included in income pursuant to paragraph 6(1)(b) unless they meet the conditions of one of the exceptions set out in subparagraphs 6(1)(b)(i) to (ix) or the exception set out in subsection 6(6). Of those exceptions, you should consider specifically the application of subsection 6(6) in your situation for the three particular situations.
Determining whether the amounts for travel, lodging and board (i.e. meals and other expenses, if any) paid to the employee by the employer "XXXXXXXXXX" meet the exception to section 6(6) is a question of fact that we cannot decide in the context of a general request. The determination of whether an allowance should not be taxed pursuant to section 6(6) can only be made in light of an examination of all the relevant facts, such as the contract of employment, 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.
By way of general comment, paragraph 6(6)(a) allows a taxpayer not to include in computing employment income an amount received that represents the value of board and lodging expenses (or an allowance not exceeding a reasonable amount for such expenses) incurred by the taxpayer during a particular period at a special work site, being a location at which the duties performed by the employee were of a temporary nature, while, inter alia, the employee maintained at another location a self-contained domestic establishment as the employee’s principal place of residence that was, throughout the period, available for the employee’s occupancy and not rented by the employee to any other person. Furthermore, the employee could not reasonably be expected to have returned daily to that self-contained domestic establishment given the distance between the establishment and the special work site. There is also a requirement that the period during which the employee was required by the employee’s duties to be away from the employee’s principal place of residence, or to be at the special work site or location, was not less than 36 hours.
In addition, paragraph 6(6)(b) allows for the non-inclusion in a taxpayer's income of an amount received in respect of transportation expenses between the taxpayer's principal place of residence and the special work site for the period referred to above during which the taxpayer received board and lodging or a reasonable allowance in respect of board and lodging from the employer.
Section 6(6) provides as summarized below:
Employment at special work site
Subsection 6(6) of the Act states that, in certain circumstances, reimbursements or allowances paid to an employee for board and lodging and certain travel expenses incurred during a particular period at a special worksite are excluded from income. Subparagraph 6(6)(a)(i) exempts reimbursements or allowances for board or lodging if all of the following requirements apply:
1. The reimbursement or allowance must be reasonable;
2. The work performed by the employee at the special worksite was of a temporary nature;
3. The employee maintained a self-contained domestic establishment at another location as the employee’s principal place of residence:
a. on the one hand, which remained at the employee's disposal throughout the particular period and which the employee did not rent to another person,
b. which was situated at such a distance from the work site that the employee could not reasonably be expected to return home daily;
4. The period during which the work performed by the employee required the employee to be away from the employee’s principal place of residence or to be at the special work site was at least 36 hours.
We have attached Interpretation Bulletin IT-91R4, Employment at Special Work Sites or Remote Work Locations, which explains, specifically in paragraphs 4 to 11, the application of subsection 6(6).
The second requirement refers to a special work site. For the sake of clarity, it should be given the general meaning as in the English version of the Act where it refers to a "special work site", i.e. a workplace where the work performed is of a temporary nature. The Act therefore does not refer to a construction site but to a much broader meaning.
Particular Situation #1
In the situation you presented to us, we are of the view that the XXXXXXXXXX employees ("Employees") could avail themselves of the exemption provided for in subsection 6(6) provided that all the conditions for the application of the subsection are satisfied. Among other things, it would be necessary to ensure that the work performed by the Employees is of a temporary nature and that the Employees maintain elsewhere, and as their principal place of residence, a separate domestic establishment.
Particular Situation #2
In the situation you presented to us, we are of the view that the Employees could not avail themselves of the exemption provided for in subsection 6(6) since all the conditions for the application of the subsection are not satisfied, given that the Employees do not keep their residence and, therefore, that the Employees do not otherwise maintain, as their principal place of residence, a separate domestic establishment.
However, expenses relating to the employee's move may be deducted under section 62 if all the conditions for application are satisfied.
Moving expenses may be deducted in the year of the move or, if not deductible in that year, in the following year. However, they are deductible only to the extent of the taxpayer's income from employment.
Expenses for which the taxpayer has been reimbursed by the employer or for which the taxpayer has received an allowance are deductible only if the reimbursement or allowance is included in the computation of the taxpayer's income.
For further details, if required, we have attached Interpretation Bulletin IT-178R3 (Consolidated) Moving Expenses in which the CRA comments on the moving expense provision.
Particular Situation #3
In the situation you presented to us, we understand that you wish to have our interpretation of the scope of the words "duties … of a temporary nature" in subparagraph 6(6)(a)(i) in a case such as the one described herein. Although the Act does not define the term "temporary", the CRA's position on that term is set out in paragraph 6 of Interpretation Bulletin IT-91R4, Employment at Special Work Sites or Remote Work Locations. As a general rule, duties will be considered to be of a temporary nature if it can reasonably be expected that they will not provide continuous employment beyond a period of two years.
The determination of the expected duration of employment must be made on the basis of the facts known at its commencement. The agreed period for which the employee was engaged under the contract of employment or other terms of employment is one of the factors to be considered. In addition, when considering the facts of a particular situation, we would generally take into account, inter alia, the length of the contract, whether an employee is aware of the possibility of reappointment at the beginning of the first term, and whether there is any indication that the employees intended to work there on a temporary basis, and the possibility that the employees' contract could be renewed. For example, if the term of the employment contract is generally two years and the possibility of renewal is known at the outset and/or if it is often the case that the employees are able to renew their contracts, we doubt that the employees' duties are of a temporary nature and, in our view, the reimbursement of expenses could not be excluded from the employees' income pursuant to subsection 6(6). However, if the employees were offered employment for a period of three years, with no possibility of extension, it is our view that a single three-year term could be work of a temporary nature. It would then be necessary to consider whether the other conditions of section 6(6) are satisfied.
This interpretation is based on the current Act and does not take into account any proposed amendments to the Act.
These comments are not advance income tax rulings and do not bind the CRA with respect to any particular factual situation.
We hope you find these comments of assistance. If you require additional information regarding the content of this document, please do not hesitate to contact us.
Best regards,
Phil Jolie
Director
Business and Partnerships Division
Income Tax Rulings Directorate