Principal Issues: [TaxInterpretations translation]
Can a taxpayer assigned to another city by his employer deduct from his employment income the rent he incurs, to the extent that he includes in his income the housing allowances he receives from his employer?
Position:
No
Reasons:
Section 8(2) specifies that the only deductions possible in respect of income from office and employment are found in section 8. That section does not provide for a deduction in this situation for this type of expense, which is, in fact, a personal expense.
September 28, 2000
Shawinigan Tax Centre Headquarters Shawinigan (Quebec) Nancy Deslandes 1232-541-2-1 (613) 957-8961
Attention: Mr. Luc Martin 2000-004101
Allowance for Personal or Living Expenses - Paragraph 6(1)(b) of the Income Tax Act
This is in response to your memo of August 2, 2000, in which you asked for our interpretation of the tax treatment to be given to your taxpayer's request. The taxpayer requested the amendment of his tax returns from XXXXXXXXXX to XXXXXXXXXX in order to allow certain employment expenses.
I- The Facts:
From XXXXXXXXXX to XXXXXXXXXX, the taxpayer was assigned to the XXXXXXXXXX office located in XXXXXXXXXX at the request of his employer. During those years, he remained a resident of Quebec and rented an apartment in XXXXXXXXXX for $XXXXXXXXXX per month. During that period, the taxpayer received a monthly allowance from his employer to cover housing costs. Those amounts were included in the taxpayer's employment income for each of the years involved.
The taxpayer is of the view that the expenses incurred for his housing in XXXXXXXXXX should be deductible since he included the housing allowances in his income. One of the arguments presented in support of his claim is that those expenses were incurred as a result of his employment. He also adds that this case is similar in nature to Splane (92 DTC 6021).
You also asked whether this situation could come within subsection 6(6) of the Income Tax Act (the “Act”).
Our Comments:
We have examined your client's situation and have divided our comments into two parts: the first concerns the allowances he received and the second concerns the expenses he wishes to deduct from his income.
I- Allowances paid by the employer:
As published in the February 7, 1996 issue of the Income Tax Technical News No. 6, the Agency's position on the reimbursement by an employer of an employee's moving expenses when the move results from a change of workplace is that such reimbursement is not taxable. However, amounts paid in the same type of situation but which serve to compensate an employee for an increase in the cost of living at the new location are taxable either as an allowance for personal or living expenses or as a benefit received or enjoyed by the employee. Paragraph 6(1)(b) of the Act stipulates that all amounts received by the taxpayer in the year as an allowance for personal or living expenses must be included in computing the taxpayer's income from an office or employment, except for certain exceptions provided for in the Act.
Thus, in the situation presented by your client, we are of the view that the allowances he received for his apartment in XXXXXXXXXX were paid as personal or living expenses and not as compensation for moving expenses (relocation). They are therefore taxable under paragraph 6(1)(b).
There are, however, certain exceptions to that paragraph. In particular, subsection 6(6) states that certain allowances paid to an employee for board and lodging expenses incurred during a given period at a special work site are excluded from the employee's income.
The purpose of this exception is to recognize that where an employee is required to work on a temporary basis at a work site located a significant distance from the employee's usual place of residence, it would not be reasonable to expect the employee to dispose of the employee’s current residence and move to the new location for a short period of time. In addition, this subsection recognizes that where an employee continues to incur expenses in order to maintain the employee’s principal place of residence without receiving rental income in return, a benefit is not provided if the employer makes available, or reimburses, the expenses incurred in connection with a temporary residence at the particular work location.
Subparagraph 6(6)(a)(i) exempts the value of benefits and allowances for board or lodging if all of the following requirements are satisfied:
1. The allowance must be reasonable;
2. The work performed by the employee on the special work site was of a temporary nature;
3. The employee maintained at another location a self-contained domestic establishment as the employee’s principal place of residence:
(a) that was, throughout the period, available for the employee’s occupancy and not rented by the employee to any other person,
(b) to which, by reason of distance, the employee could not reasonably be expected to have returned daily from the special work site.
4. The period during which the employee was required by the employee’s duties to be away from the taxpayer’s principal place of residence, or to be at the special work site or location, was not less than 36 hours.
Whether an allowance is reasonable is a question of fact that can only be resolved after an examination of all the facts surrounding a particular situation. Generally, to be reasonable, an allowance must be comparable to the actual expenses it covers.
In the situation you have presented to us, the second criterion, among others, must be satisfied. Although the Act does not define the term “temporary”, the Agency'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.
Where the duration of a period of assignment to a special work site is not clearly indicated at the outset by the employee and the employer and that period in fact lasts for more than 2 years, the work is considered never to have been of a temporary nature. Since no document specifically indicates the period of assignment to XXXXXXXXXX, your client has the burden of proving that, at the outset, the parties' intention was for the assignment to be temporary (less than two years). In such a case, he must also show that any extension of the 2-year assignment period could not have been foreseen at the beginning of the period and that this extension was also temporary. However, given that the taxpayer worked at XXXXXXXXXX for at least XXXXXXXXXX years, we are of the view that it is unlikely that this work could be considered temporary in nature.
II- Employment expenses:
Subsection 8(2) states that the only expenses deductible from employment income are those specifically listed in section 8. In this case, no deduction for personal rent expenses is provided for in the Act.
Conclusion:
In our view, the taxpayer must, under paragraph 6(1)(b), include the allowances he received from his employer for housing at XXXXXXXXXX in his employment income. Furthermore, he cannot deduct the expenses incurred for his rent against his employment income because the Act does not provide for any such deduction in computing income from office or employment in such a situation.
Splane (92 D.T.C. 6021) does not apply to a situation such as your taxpayer's. For your information, you will find enclosed a copy of Question #17 of the Roundtable on Federal Taxation presented at the 1996 conference of the Association de planification financière et fiscale, which discusses the Agency's position following the Splane decision.
We hope you find these comments useful.
Ghislain Martineau
Acting Manager
Individuals and Corporate Section
Business and Publications Division
Income Tax Rulings Directorate
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