Principal Issues: What is the tax treatment of amounts paid to an employee for travel expenses in a given situation?
Position: Travels by an employee between his or her residence and his or her regular place of employment are not travels in the performance of the duties of an office or employment. They are personal travels and all amounts paid to the employee for these travels must be included in computing his or her income under paragraph 6(1)(a) or 6(1)(b), as the case may be.
Reasons: Long standing position.
XXXXXXXXXX 2016-064363 I. Landry, M. Fisc. August 17, 2020
Dear Madam,
Subject: Amounts paid for travel by an employee
This letter follows upon your letter of April 6, 2016 in which you inquired as to the tax treatment of amounts paid to an employee for travel expenses in a particular situation that you summarized as follows.
An employee works at two establishments of the individual’s employer. The first establishment (Location 1) is located in the city where the employee resides while the other establishment (Location 2) is located in a city approximately 300 km from Location 1. The employee works one week at Location 1 and one week at Location 2.
For travel between his residence and Location 1, the employee does not receive an allowance or reimbursement of expenses.
In order to compensate the employee for the additional costs incurred in travelling to Location 2, the employer will reimburse the employee, upon presentation of supporting documents, for reasonable accommodation and meal expenses and will pay an allowance at a reasonable per-kilometre rate for the use of the employee's personal vehicle.
You indicated that subsection 6(6) of the Income Tax Act (the "Act") does not apply to the submitted situation. We have further assumed that subsection 81(1.3) does not apply to this situation. Accordingly, this Response will not comment on those provisions of the Act.
All legislative references herein are to the provisions of the Act.
Your Questions
First, you asked as to the tax treatment of the amounts paid to compensate the employee for the additional costs incurred in travelling to Location 2 as described above. You also asked whether the tax treatment of the amounts paid would be the same if the travel expenses were instead compensated through the payment of reasonable allowances.
Our Comments
This technical interpretation provides general comments on the provisions of the Act. It does not confirm the income tax treatment of a particular situation but is intended to assist you in making that determination. Our Directorate only confirms the tax treatment of particular transactions in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R9, Advance Income Tax Rulings and Technical Interpretations.
Amounts paid as reimbursements
Subject to certain exceptions that do not apply to your situation, paragraph 6(1)(a) provides that the value of board, lodging and any other benefits received or enjoyed by a taxpayer in the year in respect of, in the course of, or by virtue of the taxpayer’s office or employment shall be included in computing the income of the taxpayer.
Consequently, a reimbursement of an employee's reasonable board, lodging [and other] expenses upon presentation of supporting documents may be a benefit that must be included in computing the employee's income from an office or employment by virtue of paragraph 6(1)(a) if :
- the reimbursement confers an economic benefit on the employee;
- the economic benefit is measurable and quantifiable;
- the reimbursement primarily benefits the employee.
A reimbursement of expenses of an employee that are not incurred "in the performance of the duties of the office or employment" generally meets these criteria so that the reimbursement is a benefit that must be included in computing the employee's income from the office or employment pursuant to paragraph 6(1)(a).
Amounts paid as an allowance
Paragraph 6(1)(b) provides that all amounts received by the taxpayer in the year as an allowance for personal or living expenses or as an allowance for any other purpose must be included in computing the taxpayer's income unless one of the exceptions listed in subparagraphs 6(1)(b)(i) to (ix) apply.
The analysis of the exceptions in subparagraphs 6(1)(b)(vii) and (vii.1) is particularly relevant in this situation since these subparagraphs are intended to exclude certain travel allowances from the computation of a taxpayer's income. In order for these exceptions to apply, the allowances must, inter alia, have been received by a taxpayer for travelling "in the performance of the duties of the office or employment".
Expression "in the performance of the duties of the office or employment”
In order to be able to determine the tax treatment of amounts paid to an employee for travel expenses for the purposes of paragraphs 6(1)(a) and 6(1)(b), it is essential to determine whether the travel is "in the performance of the duties of the office or employment".
The Act does not, however, specify the meaning of the expression "in the performance of the duties of the office or employment".
Whether an employee received an allowance or reimbursement for travel "in the performance of the duties of the office or employment" or whether it was instead received for personal travel is a question of fact that can only be resolved after analyzing all the facts of a particular situation.
The Canada Revenue Agency (CRA) has, however, had a longstanding position that travel between an employee's residence and the employee’s "regular place of employment" is not travel in the performance of the duties of an office or employment. These are trips of a personal nature and any amount paid to the employee for such travel must be included in computing income under paragraph 6(1)(a) or 6(1)(b), as the case may be.
This long-standing position reflects, inter alia, a decision of the House of Lords (footnote 1), which was followed by the Federal Court of Appeal in Hogg (footnote 2), where it was held that expenses incurred by a taxpayer in commuting to and from his home to his place of work were not expenses incurred in the course of the taxpayer's performance of his employment duties but were, rather, expenses incurred in order to allow him to perform his duties. This position was adopted by Canadian courts and confirmed on numerous occasions (footnote 3).
Consequently, the concept of "regular place of employment" is a key element in determining the nature of travel undertaken by employees.
In this regard, the CRA considers that, generally speaking, a "regular place of employment" is any place where, or from which, an employee regularly reports to or performs the duties of his or her employment. The CRA is also of the view that an employee may have more than one place of employment. However, the determination of the nature of travel by employees is a question of fact that requires an examination of all the facts and documents specific to each case. Generally speaking, such a determination is made by the employer based on the characteristics of each situation, since it usually has all the relevant information it needs to properly make this determination.
In the situation submitted, if the employer determines that Location 1 and Location 2 are "regular places of employment" of the employee, the travel expenses incurred by the employee to travel between the individual's residence and these locations are personal expenses of the employee. Amounts paid to the employee for such travel must therefore be included in computing the employee's income pursuant to paragraph 6(1)(a) or 6(1)(b), as the case may be. In addition, the employee cannot deduct personal travel expenses in computing income from an office or employment.
We hope that these comments are of assistance.
Best regards,
Michel Lambert, CPA, CA, M. Fisc.
Manager
Business and Employment Income Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
FOOTNOTES
Due to our system requirements, footnotes contained in the original document are reproduced below:
1 Ricketts v. Colquhoun, [1926] A.C. 1
2 Hogg v. R., [2002] 3 C.T.C. 177.
3 See inter alia Toutov v. Canada 2006 T.C.C. 187 (IT)I, at para. 2; Daniels v. The Queen, 2004 DTC 6276 (F.C.A.) at para. 7; O'Neil v. The Queen, T.C.C., No. 19993989(IT)I, August 23, 2000, at para. 20;