29 March 2001 External T.I. 2001-0071395 - NORTHERN RESIDENTS DEDUCTION

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: (1) If an employee uses Aeroplan points to purchase airline tickets, can the equivalent cost of economy airfare be claimed as a deduction northern residents deduction? (2) If an employee does not provide receipts for advances from employers for professional development (PD) travel expenses, should the advances should be reported on these particular employees' T4 slips.

(3) If the Employer reimburses an employee for the cost of travel in connection with PD travel, but treats the reimbursement as a non-taxable benefit, can the employee claim the deduction on their personal income tax return?

Position: (1) No. (2) Yes. (3) No.

Reasons: (1) It is our general view that travel expenses have not been incurred to the extent that Aeroplan points or airmiles have been used to reduce a taxpayer's travel costs.

(2) the exclusion from income of training benefits applies only to the extent of the actual amount of training costs incurred that fit within the guidelines provided in IT-470R (Consolidated).

(3) If the employer pays for the PD travel, the employee has not incurred any expense.

XXXXXXXXXX 	J. Gibbons, CGA
		2001-007139
March 29, 2001

Dear XXXXXXXXXX:

Your letter dated February 16, 2001, to the Edmonton Tax Services Office was forwarded to us for reply. In your letter, you raised three questions in relation to travel undertaken by employees of XXXXXXXXXX (the "Employer") in connection with the employees' professional development ("PD").

As requested, we have considered the situation outlined in your letter and have provided some comments below. However, we cannot confirm the tax implications of particular transactions unless the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R4. Thus, our comments are of a general nature only.

Questions

1. If an employee uses Aeroplan points to purchase airline tickets, can the equivalent cost of economy airfare be claimed as a deduction (presumably, as a "northern residents deduction") on the employee's income tax return pursuant to paragraph 110.7(1)(a) of the Income Tax Act?

2. The Employer sometimes issues advances to employees for PD travel for which they must complete expense claim forms and original receipts upon their return to work. The Employer normally treats these reimbursements as non-taxable benefits. However, some employees do not account for their expenses, citing their collective agreement as support for this position. In these situations, you wish to know if the advances should be reported on these particular employees' T4 slips.

3. If the Employer reimburses an employee for the cost of travel in connection with PD travel, but treats the reimbursement as a non-taxable benefit, can the employee claim the deduction on their personal income tax return?

Our Comments

Question 1

The northern residents deduction under paragraph 110.7(1)(a) of the Act is computed by multiplying a specified percentage by " an amount received, or the value of a benefit received or enjoyed, in the year by the taxpayer in respect of the taxpayer's employment in the particular area by a person with whom the taxpayer was dealing at arm's length in respect of travel expenses incurred by the taxpayer or another individual who was a member of the taxpayer's household during the part of the year in which the taxpayer resided in the particular area." [Emphasis Added.] It is our general view that travel expenses have not been incurred to the extent that Aeroplan points or airmiles have been used to reduce a taxpayer's travel costs. Accordingly, the value of Aeroplan points used by an employee cannot be taken into account when computing the northern residents deduction.

Question 2

We understand from your letter that you do not include the reimbursement of employees' PD travel as a taxable benefit. Presumably, you have determined that the employees' training is taken primarily for the benefit of the employer and, in making this determination, you have followed the guidelines set out in this regard in IT-470R "Employees' Fringe Benefits (Consolidated)" (which is also set out on page 26 of the Form T4130, "Employer's Guide - Taxable Benefits 2000-2001").

In the situation you described, where an employee is given an advance for PD travel but does not account for the actual expenses, it is our view that the advance should be included as income on the employee's T4 slip. In our view, the exclusion from income of training benefits applies only to the extent of the actual amount of training costs incurred that fit within the guidelines provided in IT-470R (Consolidated).

Question 3

In regard to your third question, it is our view that if an employee has been reimbursed for travel expenses and no amount was included on the employee's T4 slip in respect thereof, no deduction is permitted on the employee's income tax return.

We trust that these comments will be of assistance.

Yours truly,

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate

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