30 April 2007 External T.I. 2006-0212631E5 - Municipal Officer's Allowances

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: Taxability of Municipal Officer's Reimbursements and Allowances.

Position: Reasonable reimbursements of expenses for specific duties or activities of members for which they are accountable are not taxable. Where the applicable provincial Municipal Act deems 1/3 (or any other lesser proportion) of remuneration paid to an elected member of a municipal council as an allowance for expenses, it is the Agency's policy that the deemed amount would be accepted as an expense allowance to be excluded from taxable income. Where there is no such deeming provision in the applicable Municipal Act, the Agency will consider the lesser of actual allowances paid and 1/3 of remuneration to be the excludable amount.

Reasons: Consistent with CRA position contained in IT-292, paragraphs 6 and 7.

								2006-021263
XXXXXXXXXX 							Joy Bertram,
	  							CGA, CPA(vt)
(613) 957-8954
April 30, 2007

Dear XXXXXXXXXX:

Re: Technical Interpretation request - Municipal Officer's Allowances

This is in response to your letter of October 23, 2006 inquiring about the taxation of municipal councillors' remuneration, where the particular municipality is incorporated and the applicable provincial Municipal Act deems 1/3 of the remuneration paid to an elected councillor to be an allowance for expenses incidental to the discharge of duties.

The situation outlined in your letter relates to a factual one, involving a specific taxpayer. It is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advanced income tax ruling. For more information about how to obtain a ruling, please refer to Information Circular 70-6R5, "Advanced Income Tax Rulings, dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the internet at http://www.cra-arc.gc.ca. 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 ("TSO") for their views. A list of TSO's is available on the "Contact Us" page of the CRA website. Although we cannot comment on your specific situation, we are prepared to provide the following general comments, which may be of assistance.

Generally speaking, a non-accountable allowance received by an employee from his or her employer is taxable as employment income pursuant to paragraph 6(1)(b) of the Income Tax Act (the "Act"). However, subsection 81(3) of the Act provides that officers and members of certain municipal organizations may exclude from their income for a year an amount received as an allowance for expenses connected with carrying out employment duties, provided that the amount does not exceed 50% of their salary or other remuneration. It should be noted that reimbursements by an employer of accountable and reasonable expenses incurred by an employee in carrying out employment duties or activities are not taxable and are not regarded as "allowances" as contemplated in paragraph 6(1)(b) or subsection 81(3) of the Act.

The CRA's general views regarding municipal officers' allowances are contained in Interpretation Bulletin IT-292, "Taxation of Elected Officers of Incorporated Municipalities, School Boards, Municipal Commissions and Similar Bodies." As noted in ¶6 of IT-292, where a particular Municipal Act deems a proportion of the total remuneration paid to an elected member of a municipal council to be an allowance for expenses, it is the CRA's policy that the proportion so deemed (up to one third of the total paid) will be accepted as an expense allowance. This treatment will apply notwithstanding that local bylaws may specifically allocate portions of the total remuneration to salary, indemnity, allowance or other remuneration. As noted above, reimbursements of accountable employment expenses are not included in income and therefore would not be included in the calculation of the total remuneration or the proportion thereof deemed to be an allowance excludable pursuant to subsection 81(3) of the Act.

In the absence of a deeming provision in the applicable provincial Municipal Act, ¶7 of IT-292 confirms that the CRA will consider one third of the total remuneration to be an expense allowance excludable from income pursuant to subsection 81(3) of the Act and two thirds to be taxable salary or other remuneration. This will be the case except where the expense allowance actually paid is less than one third of the total received, in which case this actual amount will be used. Similarly, where no expense allowance is actually paid none will be allowed.

We trust that these comments will be of assistance.

Yours truly,

Renée Shields
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch