2 June 2006 External T.I. 2006-0174671E5 F - Frais de repas et de logement
Principal Issues: [TaxInterpretations translation] Does the 8(1)(g) deduction apply to employees (specifically driver-operators and driver-helpers) for an employer engaged in the business of pumping and transporting liquid waste?
Position: The deduction cannot be applied since it has been established that the employees do not work for an employer whose principal activity is transport.
Reasons: Paragraph 8(1)(g) of the Act applies, inter alia, in the case of a transport business but not in a business whose principal activity is a combination of transport and other activity.
2006-017467 XXXXXXXXXX Anne Dagenais, M. Fisc. (613) 957-2121 June 2, 2006
Dear Sir,
Subject Request for technical interpretation
Meals and Lodging Expenses Deduction - Employees' Liability to Form TL2 F(05)
This is in response to your letter of 6 March 2006 in which you requested our opinion on your particular situation.
Unless otherwise indicated, all statutory references herein are to provisions of the Income Tax Act (the "Act").
Facts
The employer is a company that works in the field of pumping and transporting liquid waste.
The company has vehicles (vacuum trucks and/or tankers) that are used to pump liquid waste at your customer locations and transport it to authorized disposal centres.
Operators also carry out other work related to the sanitation of sewer systems (pumping of street catchment basins, pumping and pressure cleaning of sewer systems, industrial tanks, clearing of drains and pressure sewers, etc.)
Operators pick up vehicles at the employer's premises in the morning. They carry out work at one or more customer sites during the day. They return to the employer's premises in the evening. Occasionally, but very rarely, they may have to stay overnight.
The employer's premises are located in XXXXXXXXXX. Thus, all the work is carried out outside the municipality. The work is carried out on the XXXXXXXXXX
The working day is usually longer than eight hours, often ten, twelve or even fourteen hours. This is because the distance to the work site alone is often two hours (i.e. a four-hour round trip just for transport, excluding the time needed to carry out the work).
The collective agreement provides for the payment/reimbursement of one meal for every twelve hours of work and the reimbursement of lodging expenses if employees have to stay away from home overnight.
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 written opinions on 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.
Paragraph 8(1)(g) of the Act provides for a deduction for meals and lodging for employees of a person whose principal business activity is the transport of passengers, goods or passengers and goods.
Please note, however, that it is important that all the conditions for the application of paragraph 8(1)(g) be satisfied before a deduction for meals or lodging is allowed. For example, it is important that the transportation of passengers, goods or passengers and goods be the principal business activity of the employer. It is also important that the duties of the employment regularly require the employee to travel away from the municipality or metropolitan area, as provided for in subparagraph 8(1)(g)(i), and to incur expenses for meals and lodging while absent from that municipality or metropolitan area. Information Circular 73-21R8 sets out the CRA's policy on the number of hours the employee must be absent from the municipality or metropolitan area before a meal is allowed, which is four hours from the time the employee leaves the last stop within the municipality or metropolitan area, if applicable. The Circular also indicates the limit on the number of meals granted in a day or when workers are assigned to routes scheduled for ten hours or fewer during normal working hours on workdays.
In view of the above, the first requirement to be satisfied is that the transport of passengers, goods or passengers and goods is the employer's principal business activity. There is no definition of "principal activity" in the Act. The determination of a principal activity for a business therefore remains a question of fact as set out in American Metal Company of Canada Ltd v. MNR, 52 DTC 1180:
"Chief business" is not defined in either of the Acts, and the phrase, so far as I am aware, has not been the subject of judicial interpretation. In my view, it is a question of fact to be determined by an examination and comparison of all the facts concerning each of the various types of business in which the company is engaged.
The context and particular circumstances must be examined in order to reach a conclusion on the principal activity of the business. Criteria such as the distribution of the company's revenues, assets and workforce must be considered. This position is supported by the Supreme Court's comment in MNR v. Consolidated Mogul Mines Limited (now called "Mogul Mines Limited"), 68 DTC 5284:
It may be said generally that although the source of income of a corporation is an important element to be considered in determining which is its principal business it is not the only matter to be considered and not necessarily the determinant factor.
In addition, in Pepper v. MNR, 84 DTC 1613, the Tax Court of Canada judge clarified the scope of paragraph 8(1)(g) by stating that, in his view, the employer must be carrying on a transportation business, in the ordinary sense of the term, such as a commercial trucking, rail or air transport business.
..., in accordance with established rule of interpretation of statutes, the meaning of the words "principal business was...goods transport" in paragraph 8(1)(g) of the Act must be gathered from their entire context. (...) In my opinion, what the paragraph contemplates is corporations and individuals whose principal business is what is generally regarded as transportation companies or enterprises such as commercial trucking, railroading, shipping and airlines.
We also refer you to the case of The Queen v. Creamer, 76 DTC 6422, in which Mr. Creamer was an employee of Imperial Oil Limited and was engaged in the delivery of petroleum products by truck. Mr. Creamer attempted to argue that he was an employee of the transportation department of Imperial Oil Limited. The Federal Court - Trial Division determined that the different departments or divisions within Imperial Oil Limited could not be viewed as separate entities. Imperial Oil Limited was Mr. Creamer's employer and it was not a transportation company.
Thus, determining the principal activity of a business is a question of fact that should not be decided on the basis of a single test. In addition, the courts state that in making that determination, the common meaning of a transportation undertaking must be considered for the purposes of paragraph 8(1)(g). In light of the various definitions and the context of paragraph 8(1)(g), as well as on the basis of the information you have provided us, it is difficult for us to consider that the principal business activity is the transportation of passengers, goods or passengers and goods. Our understanding is that transport is a service ancillary to the other services of the business. Paragraph 8(1)(g) applies in the case of a transport undertaking, among others, but not to an undertaking whose principal activity is a combination of transport and other activities. It is our view that the term transport business does not include a transportation service that is incidental, where the services offered are offered as part of a whole. Furthermore, the CRA is of the view that there can only be one principal activity. We are therefore of the view, based on the information you have provided, that the principal activity of the business is not transportation.
Having established that the principal activity of the company does not appear to be transport as required by paragraph 8(1)(g), we will not pursue the analysis of the other conditions of paragraph 8(1)(g).
However, we would like to draw your attention to the fact that the question of whether the principal business activity is the transport of passengers, goods or passengers and goods is a question of fact which depends on the particular circumstances of each case. Our interpretation is general based on the facts and our understanding of the business. However, in the past, the CRA has indicated certain criteria to be considered, such as the distribution of income, assets and workforce of the business. Given your particular context and circumstances, it will be possible for you to submit additional facts that were previously considered by the CRA as relevant criteria for determining the principal business activity. We reiterate that that determination is one of fact and will be made in light of the above criteria.
This decision is based on the current Act and does not take into account the proposed amendments.
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 any 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