Commissioner, R.C.M.P. G.775-5 4110A04C1200 Vanier ParkwayOttawa, OntarioKlA OR2 Attention: J. Plomp, Superintendent Officer in Charge Compensation Branch
5-911452
Dear Sirs
Re: Plainclothes Allowance ("PCA") - Kit Upkeep Allowance ("KUA) - Royal Canadian Mounted Police
We are responding to your letter of May 28, 1991, concerning the tax treatment of the above-mentioned allowances paid to certain members of the R.C.M.P.. In our previous letters to you dated July 24, 1985, March 15, 1988 and April 21, 1989, we confirmed that such allowances are taxable.
You have asked us to reconsider our previously-stated opinion based on the recent decision on "police clothing", issued by the Director of Appeals and Referrals Division (the "Appeals") on April 2, 1991. You have also asked whether any change in our position would be applied retroactively, i.e. back to 1985 given the announcement of the "fairness package"
Our comments
Paragraph 6(1)(b) of the Income Tax Act (the "Act") basically provides that all amounts received as an allowance must be included in income, except specific allowances like allowances for travelling expenses, the use of a motor vehicle, etc.. Consequently, in order for an allowance to be exempt from tax it must be clearly identified as being qualified for such treatment, which is not the case for plainclothes allowances. Based on paragraph 29 of the Interpretation Bulletin IT-470 and the Huffman case (90 DTC 6405), similar amounts paid to employees on a reimbursement basis are not taxable if they are made to reimburse the cost of special clothing. Paragraph 6(1)(a) of the Act would be applicable if these amounts are considered as benefits of any kind whatever received or enjoyed by a taxpayer in respect of, in course of, or by virtue of an office or employment.
Concerning the Huffman case, one must consider the particular facts of that case to understand the decision made by the court. In the performance of his duties, Mr Huffman had to investigate industrial accidents, drownings, fires, cave-ins and bodies found in fields and ditches, including examining for fingerprints, footprints, blood stains and other physical evidence. His clothes often became soiled, torn or contaminated with odors, requiring frequent cleaning. It was necessary for him to wear a larger, looser fitting jacket to accommodate the equipment he was required to carry (notebook, badge and identification folder, billy club, pager, walkie talkie, handcuffs and revolver, in a shoulder or waist holster). The court held that the amount received by Mr Huffman was a reimbursement for the cost of special clothing required to be worn in the course of his employment. We are of the opinion that in order to fall under the same tax treatment, one must meet the same factual situation.
The decision bulletin from Appeals to which you are referring, was issued to provide guidelines for the settlement of outstanding objections and appeals. The position stated in the said document is no different from the one previously set out by this Department. It applies only to special plainclothes that are different from regular plainclothes worn by an individual. The only difference is that our department has decided, in order to avoid unfairness, to consider that the same tax treatment should be applied to all amounts received by an employee to subsidize his uniform (or special clothing) whether on an allowance basis or a reimbursement basis. However, nothing in your document indicates that the PCA is paid for special plainclothes as was the case in Huffman. Moreover, in the schedule describing the calculation of the PCA, it is stated that certain clothes will be worn 65% of the time on performance of duty (formal attire) and some others 35% of the time (casual attire). Therefore, we maintain our position as stated in our previous letters concerning the taxation of PCA. However, we agree that the "KUA" described in your document, is one of the types of allowances that Appeals intended to cover by their decision bulletin because the plainclothes are part of a uniform and worn only at work. Thus, you may cease deducting tax at source for the KUA.
As you stated in your letter, the Department found it appropriate to vary from our normal reassessment policy which is, in accordance with Information Circular 75-7R3, to not reassess when a request is based solely on another individual's successful appeal. A request for reassessment will be considered if the request is received within the three year period referred to in subsection 152(4) of the Act (or where a valid waiver has been filed) and the request meets the following criteria:
- the nature of the situation must be such that a taxable benefit was previously included in income and pertained to a reimbursed expense or allowance for special clothing (as per contract of employment), and
- the taxpayer has provided acceptable documentation from his/her employer substantiating the identity and amount of the taxable benefit.
Note that these instructions represent an exception situation and do not change our general position with respect to reassessment policy as referred to in the afore-mentioned Information Circular.
To respond to the final point of your request, it seems that the "fairness package", as proposed recently, would not extend the three year limit for adjustments to five years.
We apologize for the delay in responding to your request. We trust our comments will be of assistance to you.
Your truly,
for DirectorBilingual Services and Resources Industries DivisionRulings DirectorateLegislative and Intergovernmental Affairs- Branch