14 September 2010 External T.I. 2010-0354771E5 - Employees working on ships

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: 1. Are travel expenses deductible? 2. Can employees working on ships in the Great Lakes qualify for the special work site or remote work location exclusion?

Position: 1. Travel expenses would generally not be deductible. Question of fact but it appears that the remote work location exemption or special work site exception would not apply.

Reasons: See Response.

XXXXXXXXXX
									2010-035477
									Michael Cooke, C.A.
September 14, 2010

Dear XXXXXXXXXX :

Re: Travel Costs for Mariner Employees

We are writing in response to your correspondence dated January 11, 2010, and our numerous conversations (Cooke/XXXXXXXXXX ) wherein you have asked whether certain employees working on ships in the Great Lakes would be able to deduct their transportation expenses under section 8 of the Income Tax Act (the "Act"). You have also asked about the possible application of the "special work site" or "remote work location" benefit exemption as set out in subsection 6(6) of the Act if the employer were to pay such costs.

Our Comments:

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of a request for an advance income tax ruling submitted in the manner set out in 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. Where the particular transactions are complete, the inquiry should be addressed to the relevant tax services office, a list of which is available on the "Contact Us" page of the CRA website. We are prepared to provide the following comments in respect of some of the issues that you have raised.

Paragraphs 8(1)(h)/(h.1) of the Act

Generally, expenses incurred by an employee for travelling between the employee's home and place of employment are not deductible. For instance in Daniels v The Queen, 2004 DTC 6276 the Federal Court of Appeal stated:

"It is well established that travel expenses incurred by a taxpayer in travelling to and from his home to his place of work are considered personal expenses. They are not travelling costs encountered in the course of the taxpayer's duties. Rather, they enable him to perform them."

Stated differently, such travel costs are usually not costs incurred in the course of the performance of the duties of the office or employment but are simply in respect of the cost incurred for getting one's self to work.

As described in paragraph 32(d) of Interpretation Bulletin IT-522, Vehicle Travel and Sales Expenses of Employees, where an employee is employed on a ship, the CRA considers the ship to be the employer's place of business where the employee is ordinarily required to carry on the duties, and the fact that the ship may travel to different places is insufficient to meet the "in different places" requirement described in paragraph 8(1)(h) or paragraph 8(1)(h.1) of the Act.

Therefore, travel between an employee's home and an employer's ship or ships (or port where such ship or ships are normally docked) where the employee normally carries out the duties of employment would be personal travel (i.e., travel between home and a regular place of employment) such that the transportation costs incurred by an employee in respect of such travel would not generally be deductible under paragraph 8(1)(h) or paragraph 8(1)(h.1) of the Act, as the case may be.

However, there might be instances where an employee, who normally reports to work at particular port ("home port"), is either occasionally required by the employer to commence a work shift from a port other than the home port or, perhaps, is required to end a work shift at a port other than the home port. In such circumstances, we agree that the employee should be able to deduct reasonable travel costs between the two ports under paragraph 8(1)(h) or paragraph 8(1)(h.1) of the Act, provided the other requirements of those paragraphs are met. Alternatively, we agree that no taxable benefit should arise if an employer were to pay or reimburse reasonable costs for such travel.

Subsection 6(6) of the Act

Generally, the value of employer-provided board and lodging at or transportation to and from a particular work location is to be included in the employee's income pursuant to paragraph 6(1)(a) of the Act. However, subsection 6(6) of the Act provides an exception from this treatment where an employee works at a special work site or a remote work location. As stated in archived Interpretation Bulletin, IT-254R2, "Fishermen - Employees and Seafarers - Value of Rations and Quarters":

"The unique characteristic of a vessel or ship as a place of work in conjunction with its physical or geographical situation leads to the conclusion that a vessel or ship can qualify as a remote work location when it is at sea for a period of not less than 36 hours. Where the duties performed by an employee on board a vessel or ship are of a temporary nature and the employee meets the other conditions specified in subparagraph 6(6)(a)(i), the vessel or ship will qualify as a special work site at any time when that employee is on board, whether it is at port or at sea."

Whether time on board a ship in port would be included in the term "at sea" depends upon the particular circumstances. As discussed in paragraph 4 of IT-254R2, the CRA will generally consider time spent "at sea" to include time spent in port for:

(a) quarantine;
(b) the need to await docking operations;
(c) the need to await immigration and customs clearance; and
(d) loading or unloading cargo when the ship is in transit and is only in port for a very short time (i.e., a few hours or less) before it sails again.

However, once the ship is docked and an employee is free to leave the ship (i.e., when none of the four above-described exceptions apply) the ship will not be considered to be "at sea" such that it will not be a remote work location. The determination of whether a particular ship can be considered a remote work location as described in subparagraph 6(6)(a)(ii) for a particular employee remains a question of fact that can only be determined on a case-by-case basis.

Where the ship is not a remote work location but the employee is otherwise required to remain on the ship for a period of not less than 36 hours it might be possible for the ship to be a special work site for that employee assuming all the conditions in subparagraph 6(6)(a)(i) of the Act are met. These conditions are discussed in Interpretation Bulletin IT-91R4, "Employment at Special Work Sites or Remote Work Locations." However, and of particular importance, is whether the particular employee's duties of employment at such place are of a temporary nature.

While a question of fact, it is our view that simply because an employee performs the duties of employment on different employer-owned ships, this will not, in and of itself, mean that the employee is engaged in various "temporary" employments as required by subparagraph 6(6)(a)(i) of the Act. Accordingly, in such circumstances, any employer-provided benefit for meals, lodging and transportation (other than initial or terminal transportation) would be taxable under paragraph 6(1)(a) of the Act.

We trust our comments will be of assistance to you.

Yours truly,

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