Principal Issues: What is the tax treatment of amounts paid to certain employees for travel expenses in a given situation?
Position: Based on the facts submitted, these amounts will generally not have to be included in the calculation of income from an office or employment.
Reasons: Application of the Act to the given situation based on CRA’s long-standing position.
June 30, 2022
XXXXXXXXXX Tax Services Office Headquarters XXXXXXXXXX Income Tax Rulings Directorate L. Gélinas
Attention: XXXXXXXXXX
2022-093667
Subject: Tax treatment of payments for travel expenses
This letter is in response to your email of May 17, 2022 in which you asked us about the tax treatment of amounts paid to certain employees for travel expenses in a particular situation.
This particular situation can be summarized as follows:
XXXXXXXXXX ("Employer") plans to hire new employees who live at a great distance from its offices for a period of 24 months.
Given the great distance between the residence of these new employees and the Employer's offices, their contract of employment will provide that they will work from home. Their contract of employment will designate one of the Employer's offices as their place of work. However, the Employer will not require regular attendance and will not reserve a workspace for them at such place of work. The Employer will provide and pay for all equipment necessary for home-based work.
To date, the only attendance requirement at the place of work designated in the employment contract is a single three-day visit during the term of the employment contract for training and team building activities. For some employees, this visit will take place in the first year of their employment contract, while for others it will take place in the second year. Finally, some of these new employees will not have to visit the place of work designated in the employment contract during the term of their employment contract.
For those new employees who will have to travel, the Employer will pay them the amounts provided for in its XXXXXXXXXXX Directive. This includes reimbursement of reasonable accommodation and transportation costs (train, bus, etc.), or payment of an allowance based on a kilometric rate where employees will be using their private vehicle, as well as payment of a meal allowance, upon presentation of receipts.
All statutory references herein are to provisions of the Income Tax Act (the "Act").
OUR COMMENTS
The value of benefits and amounts received as an allowance for personal or living expenses is generally included in computing a taxpayer's income from an office or employment pursuant to subsection 6(1), unless those benefits or allowances fall within one of the exceptions listed in subparagraphs 6(1)(a)(i) to (vi), subparagraphs 6(1)(b)(i) to (ix) or subsection 6(6).
Amounts paid for travel expenses in the form of reimbursement of expenses
Subject to the exceptions listed in subparagraphs 6(1)(a)(i) to (vi) which do not apply to the situation under consideration and those listed in subsection 6(6), paragraph 6(1)(a) provides that the value of board, lodging, and any other benefit 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 is to be included in computing the taxpayer's income from that office or employment.
To be included in computing a taxpayer's income from an office or employment pursuant to paragraph 6(1)(a), the benefit must confer a measurable and quantifiable economic advantage on the employee and primarily benefit the employee.
We are of the view that an expense reimbursement made by an employer to an employee for expenses of travel that is not made in the course of the employee's office or employment is a reimbursement of personal expenses that confers a measurable and quantifiable economic benefit to the employee that primarily benefits the employee. Consequently, such a reimbursement is generally a benefit that must be included in computing the employee's income from office or employment pursuant to paragraph 6(1)(a) unless subsection 6(6) applies.
Whether an employee received money for travel in the performance of the duties of the employee’s office or employment or whether the employee received it for travel of a personal nature is a question of fact that can only be resolved after analyzing all the facts of a particular situation.
However, it has been our longstanding position that any travel by an employee between the employee’s residence and a "regular place of work" is not travel in the performance of the duties of the office or employment. It is travel of a personal nature.
On the other hand, travel between an employee's residence and a place of work other than a regular place of work is generally considered to be in the performance of the duties of the office or employment. In this case, the reimbursement of travel expenses will not constitute a benefit to be included in computing the employee's income from office or employment pursuant to paragraph 6(1)(a).
The tax treatment of travel expenses paid to a new employee in this situation therefore depends on whether the place of work designated in the employment contract is a regular place of work. This determination is a question of fact that can only be resolved after an examination of all the facts relevant to a particular situation. Generally, such a determination is made by the employer since the employer has all the relevant information to make that determination properly.
Generally speaking, a regular place of work is any place to or from which an employee regularly reports or performs the duties of the employee’s employment. The regularity of travel to a workplace and the nature of the duties performed at that workplace may be taken into account in determining whether a location is indeed the employee's regular place of work. In addition, an employee may have more than one regular place of work.
Based on the facts presented to us in this situation, we are of the view that the place of work designated in the employment contract is not a regular place of work for the new employees. Consequently, travel between the residence of one of these employees and the employee’s place of work designated in the employment contract would be travel in the performance of the duties of the employee’s office or employment. In this case, amounts paid for travel expenses such as reimbursement for board, lodging and transportation will not have to be included in computing income from an office or employment pursuant to paragraph 6(1)(a).
It is important to note that this conclusion is based on the information you have submitted to us. It is possible that the place of work designated in the employment contract may be a regular place of work for some employees if the facts are different. In this case, any travel by an employee between the employee’s residence and a regular place of work would be travel of a personal nature and would generally be included in computing the employee’s income from the employee’s office or employment pursuant to section 6(1)(a) unless section 6(6) applies. Subsection 6(6) is discussed later in this letter.
Amounts paid for travel expenses in the form of an allowance
Paragraph 6(1)(b) provides that amounts received in the year as allowances for personal or living expenses or as allowances for any other purpose must be included in computing a taxpayer's income from an office or employment unless one of the exceptions listed in subparagraphs 6(1)(b)(i) to (ix) or subsection 6(6) applies.
The analysis of the exceptions in subparagraphs 6(1)(b)(vii) and (vii.1) is particularly relevant to the situation at hand since those subparagraphs are intended to exclude from computing a taxpayer's income certain travel expense allowances.
First, subparagraph 6(1)(b)(vii.1) refers to reasonable 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 in the performance of the duties of the office or employment.
As previously stated, we are of the view, based on the facts submitted, that travel between an employee's residence and the place of work designated in the employee’s contract of employment in the situation submitted will be travel undertaken in the performance of the duties of the employee’s office or employment. Consequently, should the Employer pay a reasonable allowance based on a kilometric rate for employees to use their private vehicle in the submitted situation, that allowance will come within the exception in subparagraph 6(1)(b)(vii.1). In this case, it will not have to be included in computing employment income pursuant to paragraph 6(1)(b).
This conclusion is based on the information you have submitted to us. If the facts change and it turns out that an employee's travel is not in the performance of the duties of an office or employment, a reasonable allowance for the use of the employee’s motor vehicle will generally have to be included in computing the employee’s income from an office or employment pursuant to paragraph 6(1)(b) unless subsection 6(6) applies.
Subparagraph 6(1)(b)(vii) refers to 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 travel in the performance of the duties of the employee’s office or employment. Those allowances must also be received for travelling away from
(A) the municipality where the employer’s establishment at which the employee ordinarily worked or to which the employee ordinarily reported was located, and
(B) the metropolitan area, if there is one, where that establishment was located,
Regarding the concept of "employer's establishment", our longstanding position is that a home office is not an employer's establishment. A workplace will only be considered an establishment of the employer if the employer is the owner or tenant of the workplace.
In the situation presented, the employees' travel is therefore not for the purpose of travelling away from the municipality and, where applicable, the metropolitan area where the employer's establishment was located. Consequently, reasonable travel allowances, other than motor vehicle allowances, will not come within subparagraph 6(1)(b)(vii), even if an allowance was received by the employee for travel in the performance of the duties of the office or employment. Such an allowance will therefore generally have to be included in computing income from an office or employment pursuant to paragraph 6(1)(b) unless subsection 6(6) applies.
Special work site pursuant to subsection 6(6)
In summary, paragraph 6(6)(a) permits a taxpayer not to include in computing income from an office or employment any amount received by the taxpayer in the course of the office or employment that represents the value of expenses, or an allowance (not exceeding a reasonable amount) that relates to expenses incurred for board and lodging for a period of time at a special work site if the period during which the work required the employee to be away from the employee’s principal place of residence was not less than 36 hours. A special work site is a place where the work performed by the employee is of a temporary nature while the employee maintained a self-contained domestic establishment elsewhere as the employee’s principal place of residence:
(a) which remained at the employee's disposal, and
(b) to which, by reason of distance, the employee could not reasonably be expected to have returned daily from the special work site;
In addition, paragraph 6(6)(b) allows an amount received in respect of transportation costs between the taxpayer's principal place of residence and the special work site to be disregarded in computing the taxpayer's income from an office or employment for the period referred to above during which the taxpayer received a reasonable board and lodging allowance from the employer.
One of the requirements for subsection 6(6) to apply is that the work performed by the employee at the special worksite be of a temporary nature. Although the Act does not define "temporary nature", we are of the view on the facts submitted that the work to be performed by the employees at the work site designated in the contract of employment in the situation submitted will be temporary in nature. Consequently, amounts paid by the employer for the travel of certain employees in the situation submitted will not have to be included in computing their income from an office or employment pursuant to subsection 6(6) if all other conditions of that subsection are otherwise met.
Best regards,
Isabelle Landry
Interim Manager
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
XXXXXXXXXX