Principal Issues: Whether the deductibility of employer's meal allowance expenditures is limited to the 50% restriction provided for under subsection 67.1(1) of the Act where the amounts are excluded from the employee's income pursuant to subparagraph 6(1)(b)(vii) of the Act.
Position: Yes.
Reasons: The paragraph 67.1(2)(d), (e) and (e.1) exceptions to the 50% restriction do not apply.
March 15, 2005
XXXXXXXXXX Tax Services Office HEADQUARTERS XXXXXXXXXX A. Seidel Auditor (613) 957-2058
2005-011431
Special Work Site/Remote Work Location
We are writing in response to your e-mail dated February 2, 2005, concerning the application of subsection 67.1(1) of the Income Tax Act (the "Act") to meal allowances paid by the employer to employees.
Background
XXXXXXXXXX.
Issue
Does the 50% limitation in subsection 67.1(1) of the Act apply to restrict the company's deduction of such meal allowances?
Your Views
You consider the XXXXXXXXXX to be in travel status, rather than working at a remote work location or a special work site, such that the meal allowances paid by the company are subject to the restrictions set out in subsection 67.1(1) of the Act.
Our Comments
In general, an allowance paid to an employee, and the value of employer-provided board and lodging, are included in the employee's income under the rules in subsection 6(1) of the Act. The rules in subsection 6(1) of the Act also apply to allowances paid to reimburse outlays by an employee for meals, lodging or other items that are personal or living expenses. However, there are certain exceptions to these general rules. Subparagraph 6(1)(b)(vii) of the Act provides an exception for "reasonable allowances for travel expenses (other than allowances for the use of a motor vehicle) received by an employee (other than an employee employed in connection with the selling of property or the negotiating of contracts for the employer) from the employer for travelling away from the municipality where the employer's establishment at which the employee ordinarily worked or to which the employee ordinarily reported was located, and the metropolitan area, if there is one, where that establishment was located, in the performance of the duties of the employee's office or employment". Subsection 6(6) of the Act provides an exception where the duties of employment require an employee to perform such duties at a special work site or a remote work location. Interpretation Bulletin IT-91R4 ("IT-91R4") outlines the Canada Revenue Agency's views with respect to employment that qualifies for the special work site or remote work location exclusion.
Conclusion
Based on the information provided to us, consideration has to be given to whether there is a taxable benefit under paragraph 6(1)(a) of the Act for reimbursement of actual travel expenses, whether the exception in subparagraph 6(1)(b)(vii) of the Act, travelling in the performance of the duties of the employee's employment, or whether the exception in subsection 6(6) of the Act, the special work site/remote work location exception, could apply in this particular situation. In this particular case, it is our view that there would be no taxable benefit to the XXXXXXXXXX for any actual reasonable reimbursement of travel costs and that no amount is included in the XXXXXXXXXX income by virtue of the exception in subparagraph 6(1)(b)(vii) of the Act. Subsection 6(6) of the Act is not relevant to the determination of whether or not the XXXXXXXXXX are in receipt of a taxable employment benefit because the amounts in question are not otherwise taxable under subsection 6(1) of the Act.
For the purposes of subsection 67.1(1) of the Act, the exceptions in paragraphs 67.1(2)(d), (e) and (e.1) of the Act are only applicable to meal allowances that are excluded from a XXXXXXXXXX income by virtue of subsection 6(6) of the Act. Where meal allowances are not a taxable employment benefit by virtue of subparagraph 6(1)(b)(vii) of the Act, or the travel expenses are not a taxable employment benefit under paragraph 6(1)(a) of the Act, it is our view that the 50% limitation in subsection 67.1(1) of the Act will apply to the employer. Accordingly, subsection 67.1(1) of the Act will apply to restrict the employer's deduction of the meal allowances it pays to XXXXXXXXXX while travelling in the course of performing their duties of employment away from XXXXXXXXXX.
If we can be of any further assistance, please do not hesitate to contact us.
For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Customs and 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, they can be provided with the electronic library version, or they may request a copy severed using the Privacy Act criteria which does not remove client identity. Requests for this latter version should be made by you to Mrs. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.
John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch