24 February 1995 External T.I. 9501025 - ALLOWANCES FOR OUT OF COUNTRY EMPLOYEES

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 CCRA.

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

Principal Issues: taxation of benefits rec'd by employee in respect of XXXXXXXXXX secondment to XXXXXXXXXX

Position TAKEN: question of fact but housing allowance & transport to/from XXXXXXXXXX likely 6(6) exempt, education, dependant child & establishment grant likely taxable

Reasons FOR POSITION TAKEN:

documentation not submitted & there was no indication that 6(1)(b)(iii) might be applicable

Natural Resources Canada
Atlantic Geoscience Centre
Bedford Institute of Oceanography 950102
Box 1006 A. Humenuk
Dartmouth, Nova Scotia
B2Y 4A2

Attention: Dr. D.L. Forbes

February 24, 1995

Dear Sirs:

Re: Employees working outside of Canada

We are replying to your letter of January 4, 1995 concerning the taxation of various reimbursements and allowances payable to employees who are temporarily working outside of Canada.

You are currently negotiating with an international organization based in XXXXXXXXXX in respect of the compensation to be paid to employees of your organization for a proposed secondment to XXXXXXXXXX. You have asked whether the following reimbursements and allowances payable under the standard employment code of that organization will be taxable to the employees who are seconded from your organization to theirs:

1. a housing allowance based on the difference between 10% of salary and the rent actually paid up to a specified limit,

2. an educational allowance of $XXXXXXXXXX dollars for each dependant child paid on a reimbursable basis for tuition and other compulsory educational costs,

3. an annual allowance of $XXXXXXXXXX dollars for each resident dependant child,

4. an establishment grant of $XXXXXXXXXX dollars for the first appointment to a position with that organization,

5. temporary accommodation at a suitable hotel for newly recruited staff for up to XXXXXXXXXX working days,

6. reimbursement of relocation costs by air freight to a specified limit determined with reference to the cost of transporting ten cubic metres of belongings by sea freight over a similar distance and

7. return airfare for the employee and dependants.

Individuals who are resident in Canada are taxed on their world-wide income whereas non-residents of Canada are only taxed on their income from a Canadian source. The enclosed Interpretation Bulletin IT-221R2 "Determination of an Individual's Residence Status" and special release thereto provide further information on the determination of an individual's residence status for tax purposes. For the purpose of our response however, we will assume that the individuals in question would be considered as continuing residents of Canada and that it is the employer organization in XXXXXXXXXX which is paying the allowances and reimbursements.

It is a question of fact as to whether any of the amounts described above would be taxable as employment income. Such a determination can only be made after a review of all the relevant facts and documentation, including terms and conditions of the employment and the standard employment code which describes the allowances and reimbursements. In particular, the taxation of some of the amounts may be dependent upon whether the services for the international organization will be carried out under a prescribed development assistance program as defined in subsection 3400 of the Regulations. As we were unable to obtain any documentation relating to the secondment from your office, we offer the following general comments which may assist you in making an appropriate determination.

A housing allowance is generally included in income unless it is exempt by reason of subsection 6(6) of the Act. The enclosed Interpretation Bulletin IT-91R3 "Employment at Special or Remote Work Sites" and special release thereto provides details of this exemption. Provided that the individual maintains a self-contained domestic establishment in Canada that is available for his or her use throughout the period of the secondment and is not rented out, it is reasonable to assume that the housing allowance would not be required to be included in income.

While it is not clear from your letter whether the amount payable for education is paid as an allowance or as a reimbursement, an allowance or reimbursement of educational costs would normally be included in income. While there is an exception in subparagraph 6(1)(b)(ix) of the Act for certain educational allowances paid in respect of a child who is living apart from the employee because of the lack of a suitable school in the location where the employee is required to live and work, the facts presented in your letter seem to suggest that the child would reside with the employee and that the reason for the allowance or reimbursement is that there are no free public schools in XXXXXXXXXX.

Without additional details concerning the allowance for a child resident with the employee or the establishment grant, we can only confirm that an allowance payable to an employee is included in income under paragraph 6(1)(b) of the Act unless it falls within the list of exceptions noted in that paragraph. Based on the information provided however, it would appear that the allowance and grant would be included in income.

As explained in paragraph 35 of Interpretation Bulletin IT-470R "Employees' Fringe Benefits", a copy of which is enclosed, the reimbursement of direct costs incurred by the employee in the relocation, such as the cost of temporary accommodation and transportation of personal goods by either air or sea freight would not be included in the employee's income.

The reimbursement of the costs of relocating an employee upon the termination of employment is normally considered to be a taxable benefit. However, provided that the location in XXXXXXXXXX can be considered a special work site for the purposes of subsection 6(6) of the Act, no amount will included in an employee's income for transportation provided to and from the special work site at the commencement and the completion of employment.

We trust our comments will be of assistance to you.

Yours truly,

P.D. Fuoco
for Director
Business and General Division
Rulings Directorate
Policy and Legislation Branch

Enclosure
c.c.Jim Laidlaw, Revenue Collections
Halifax Tax Services

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