5 December 2005 GST/HST Interpretation 62908 - Eligibility for the Code 8 Rebate of Travel Allowances Given to Employees as an Inducement to Gain or Maintain Their Employment

Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.

Thank you for your request for clarification of our position concerning the eligibility for the code 8 rebate for the XXXXX (referred to below as the Employer) for the acquisition by it of travel for its teacher employees. We provided you with a verbal response to this query at an earlier time.

Interpretation Requested

The Employer has been determined to be a band-empowered entity (BEE) situated on the XXXXX in XXXXX, near XXXXX. The Employer gives a travel allowance of $XXXXX twice a year to each of its employees who are teachers (where the teacher has dependants, the teacher receives $XXXXX twice a year). You asked if the tax fraction of the teachers' travel allowance is eligible for the code 8 rebate.

Interpretation Given

An Indian band or BEE will qualify for the code 8 rebate for the tax fraction of a travel allowance paid to an employee where the travel allowance is an inducement for gaining or maintaining the employment of the recipient of the allowance, under certain conditions consistent with TIB B-039R2, GST/HST Administrative Policy - Application of the GST/HST to Indians (revised). The amount of the allowance (bearing in mind the high cost of travel to and/or from remote reserves) and the frequency of the travel must be reasonable in the circumstances. Where the amount of the allowance and/or the frequency of the travel are not reasonable, the code 8 rebate is not available. In those circumstances, the amount is considered to be paid out for the personal benefit of the employee, and not an amount paid for band management activities.

The conditions for the availability of the code 8 rebate for a travel allowance provided by a band or a BEE as an inducement to gain or maintain the employment of the recipient of the recipient of the allowance are:

•   where the employer is a BEE, the employer must maintain a presence on a reserve;

•   the employer must provide the allowance to its employee, and not to a self-employed contractor;

•   the underlying activity must be a band management activity and not a commercial activity for which input tax credits are available;

•   the other requirements under B-039R2 are met (e.g., 2-year time-limit on the rebate); and

•   the amount of the allowance and the frequency of the travel must be reasonable in the circumstances.

A band/BEE will also qualify for the code 8 rebate where it reimburses an employee for the travel or when the band/ BEE directly acquires the travel service and pays the GST/HST, and the first 4 conditions above are satisfied. In these circumstances, the cost and frequency of the employee's travel must also be reasonable.

The treatment of the travel payments for GST/HST purposes has no impact on whether the amounts are a taxable benefit of the employee for income tax purposes.

If you require further clarification, please call me at (613) 957-1175, or Dave Caron, the manager of the Aboriginal Affairs Unit, at (613) 954-7957.

Dwight Kostjuk
Rulings Officer
Aboriginal Affairs Unit
Excise & GST/HST Rulings Directorate

2005/12/19 — RITS 63297 — [Application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to a Certain Management and Operating Lease Agreement]