17 July 2006 External T.I. 2006-0175331E5 - Special Work Site

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.

Principal Issues: Whether the assignment of an employee normally based in one location to a second location for up to XXXXXXXXXX years, is considered to be of a temporary nature for purposes of subsection 6(6). If the assignment is considered to be of a temporary nature, and the second location meets the definition of a special work site, would prepaying the periodic allowances that would normally be paid to the employee for the entire XXXXXXXXXX years be acceptable for purposes of subsection 6(6)? If the lump sum prepayment is not acceptable for purposes of subsection 6(6), how should it be recorded by the company and reported by the employee?

Position: The employee's employment in the second location would be of a temporary nature for purposes of subsection 6(6). The payment of the lump sum advance is not, in and of itself, unacceptable for purposes of subsection 6(6).

Reasons: Although the assignment to the second location is for a period exceeding two years, the employee would be returned to his or her substantive position in his or her home location at the end of XXXXXXXXXX years. Further, the employee's spouse would remain in the couple's principal residence in his or her home location during the duration of the employee's assignment. The company should periodically recognize a portion of the advance as an expense that covers the employee's periodic cost for board and lodging and for transportation while actually working at the special work site. In terms of taxation for the employee, while the payment of the lump sum advance is not, in and of itself, unacceptable for purposes of subsection 6(6), as the recipient of an interest-free employee advance, the employee would be in receipt of taxable employee benefits under subsection 80.4(1).

XXXXXXXXXX 						2006-017533
							Dominic Tiu
(613) 957-8961
July 17, 2006

XXXXXXXXXX:

Re: Special Work Site

We are writing in response to your March 9th, 2006 inquiry on the above subject and further to our subsequent telephone discussions (XXXXXXXXXX/Tiu). You inquired as to the following:

• Whether the assignment of an employee normally based in one location to a second location for up to XXXXXXXXXX years, is considered to be of a temporary nature for purposes of subsection 6(6) of the Income Tax Act (the "Act")
• If the assignment is considered to be of a temporary nature, and the second location meets the definition of a special work site, would prepaying the periodic allowances that would normally be paid to the employee for the entire XXXXXXXXXX years be acceptable for purposes of subsection 6(6)? If the lump sum prepayment is not acceptable for purposes of subsection 6(6), how should it be recorded by the company and reported by the employee?

You provided the following information:

An employee based in the company's offices in XXXXXXXXXX was offered a temporary transfer to the company's offices in XXXXXXXXXX, for a term of XXXXXXXXXX years. The employee has return rights back to his or her substantive position at the end of the XXXXXXXXXX years. The employee's spouse will remain at their principal residence in XXXXXXXXXX. The employee will pay for temporary accommodations in XXXXXXXXXX and will travel back and forth between XXXXXXXXXX and XXXXXXXXXX on a XXXXXXXXXX basis during the term of the assignment.

The company and the employee have both agreed to a lump sum payment of $XXXXXXXXXX in lieu of the employee's eligible relocation and living expense coverage under the company's relocation policy. Should the employee cut short the assignment in XXXXXXXXXX, the employee has agreed to repay the company at the rate of $XXXXXXXXXX per month. It is our understanding that the $XXXXXXXXXX represents the approximate total of what the average monthly allowances would be for board and lodging in XXXXXXXXXX, for XXXXXXXXXX trips between XXXXXXXXXX and XXXXXXXXXX and for the initial and final trips including the shipment of about XXXXXXXXXX pounds in personal effects. The company initially viewed the lump sum payment as an unaccountable advance in lieu of a reimbursement of eligible relocation expenditures, expensed the entire amount, and treated it as taxable income to the employee.

The particular situation in your letter appears to relate to a factual one, involving a specific taxpayer. As explained in Information Circular 70-6R5, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an Advance Income Tax Ruling. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate Tax Services Office for their views. However, we are prepared to provide the following general comments, which may be of assistance.

Meaning of Temporary

Paragraphs 5 and 6 of Interpretation Bulletin IT-91R4 discuss the Agency's position with respect to the meaning of the phrase in subsection 6(6) that the "duties performed by the taxpayer were of a temporary nature". It recognizes that as a general rule, that the duties will be considered to be of a temporary nature if it can reasonably be expected that they will not provide continuous employment beyond a period of two years. However, there might be situations where the employment period extends beyond two years, in which it will also be appropriate to consider the duties to be of a temporary nature.

Although the assignment to XXXXXXXXXX is for a period exceeding two years, the employee would be returned to his or her substantive position in XXXXXXXXXX at the end of XXXXXXXXXX years. Further, the employee's spouse would remain in the couple's principal residence in XXXXXXXXXX during the duration of the employee's assignment. Based on these facts, it is our view that the employee's employment in XXXXXXXXXX would be of a temporary nature for purposes of subsection 6(6).

Lump Sum Payment Of $XXXXXXXXXX

In our view, the company cannot deduct the entire advance in the period in which it is made and it is not income to the employee at the time it is paid. The company should periodically recognize a portion of the advance as an expense that covers the employee's periodic cost for board and lodging and for transportation while actually working at the special work site. In terms of taxation for the employee, while it is our opinion that the payment of the lump sum advance is not, in and of itself, unacceptable for purposes of subsection 6(6), we would like to comment that as the recipient of an interest-free employee advance, the employee would be in receipt of taxable employee benefits under subsection 80.4(1).

These comments represent our opinions of the law as it applies generally, and as indicated in paragraph 21 of Information Circular 70-6R5, are not binding on the Department. Nevertheless, we hope that our comments will be of assistance to you.

Randy Hewlett
Section Manager
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch