Revenue Canada Taxation Head Office
XXXX
R.B. Day (613) 957-2136
MAY 7 1987
Dear XXXX
We are writing in reply to your letter of March 5, 1987, wherein you requested our opinion regarding the application of section 110.7 of the Income Tax Act (the Act) as it relates to northern residents in the situations described in your letter and as summarized below.
1. Housing Benefits - Paragraph 110.7(1)(e) of the Act
An employer provides rent-free accommodation to an employee and also pays all of the utility, maintenance and other costs related to the accommodation provided to that employee.
You have requested our opinion as to whether or not, the employee in this situation, would be considered to have "maintained and resided in a self-contained domestic establishment" for purposes of clause 110.7(l)(e)(ii)(A) of the Act.
Provided that the employee, in this situation, meets the basic requirements set out in the preamble to subsection 110.7(1) of the Act, it is our opinion that the employee would be considered to have "maintained and resided in a self-contained domestic establishment" and would be entitled to the deduction described in clause 110.7(l)(e)(ii)(A) of the Act, subject to the other limitations in paragraph 110.7(l)(e) of the Act. The fact that this employee had received a benefit, taxable under paragraph 6(1)(a) of the Act, with respect to the employer-subsidized housing does not, in and by itself, affect the views expressed above.
2. Travel Assistance - Paragraph 110.7(1)(d) of the Act
You have requested our opinion as to whether or not vacation bonuses and other remuneration received by employees, in the three situations described below, would represent "an amount received ... in respect of travelling expenses incurred by him ...".
a) An employee is a union member whose terms and conditions of employment are covered by a collective bargaining agreement. Pursuant to the terms of the agreement, the employee receives a "vacation bonus" of $17 per day for each day that he is on vacation. The receipt of the vacation bonus is not conditional on the employee incurring travel or other vacation expenses.
b) An employee is not covered by a collective agreement but is in receipt of a regular salary and, in addition, receives a "vacation bonus" of $17 per day for each day that he is on vacation. The receipt of the vacation bonus is not conditional on the employee incurring travel or other vacation expenses.
c) An employee is in receipt of a regular salary, but receives no vacation bonus.
It is our opinion that, in all of the above situations, clause 110.7(l)(d)(ii)(B) would not permit the deduction of any portion of the bonuses received or any portion of the employees' regular remuneration.
Our reasons in support of this view are as follows:.
Paragraph 110.7(1)(d) of the Act states, in part, that "... there may be deducted ... an amount received ... in the year by him in respect of his employment ... in respect of travelling expenses incurred by him, to the extent that the amount received ... is included and is not otherwise deducted in computing his income ... and the travelling expenses were incurred in connection with ... not more than two trips made in the year ...".
From this wording it is our opinion that there must be a connection between the actual travelling expenses incurred by the taxpayer and the amounts paid by the employer to defray those costs. The following comments support this view.
The Technical Notes to the Notice of Ways and Means Motion, dated October 1986, state, at page 42, that:
"An employee may claim a deduction in computing taxable income in respect of certain travel benefits provided to the employee and his family by his employer to the extent that the value of the benefits is included in his income from employment ... . In addition a deduction may be claimed with respect to travelling expenses incurred in connection with not more than two trips made in a calendar year".
The Department of Finance Release 86-211, dated December 22, 1986, makes the following comments at page one, under the heading "Travel Assistance":
"The new system extends to an employee a deduction for up to two employer-provided vacation trips per year to the nearest designated city. The benefit of all employer- provided travel will be included in income but the value of two vacation trips ... will be deductible to the employee. The deductions are allowed only if the vacation ... travel actually takes place".
Since the amounts paid to the employees, in the three situations cited above, are not amounts paid as travel assistance, it is our opinion that the bonuses and other remuneration received would be included in the employees' income under subsection 5(1) or paragraph 6(l)(a) of the Act, as the case may be, and that no deduction would be permitted under paragraph 110.7(1)(d) of the Act.
It should be noted that, in our response, we omitted all references to the value of benefits received, medical trips and other aspects of the legislation not directly related to the specifics of these three situations. These omissions should not, therefore, be misconstrued relative to the opinions expressed above.
Yours truly,
for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch