8 March 2000 External T.I. 1999-0011475 - travel 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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

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

Principal Issues: The issue is whether an allowance paid to truckers for expenses such as meals and lodging is "reasonable" for the purposes of subparagraph 6(1)(b)(viii) of the Act. The quantum of the allowance is based on distance travelled. Subparagraph 6(1)(b)(vii) of the Act refers to reasonable allowances for travelling expenses received from the employer for travelling away from the Metropolitan area (assuming there is one), where the employer's establishment is located.)

Position: This issue is determined on a case-by-case basis. We have also provided general comments to the effect that it could be questionable whether an allowance for such expenses falls within subparagraph 6(1)(b)(vii) of the Act when the allowance is determined by distance travelled.

Reasons: See position.

XXXXXXXXXX

Attention: XXXXXXXXXX

March 8, 2000

Dear Sirs:

Re: Allowances for Travel Expenses of Truck Drivers

This is in reply to your letter of November 24, 1999, concerning the above noted subject in the following situation. We also acknowledge the information submitted with your letter of February 16, 2000.

The employer is a Canadian corporation for income tax purposes. The principal business of the employer is to supply freight transportation services by using its own trucks which are driven by its employees. In performing their duties, the employees must travel outside the metropolitan area in which the establishment of the employer is located. The employer mainly delivers freight from Canada to the United States and vice versa.

The number of hours that can be driven by a driver during a week is regulated by the Commercial Vehicle Drivers Hours of Service Regulations, 1994 (the "Regulations") under the Quebec Motor Vehicle Transport Act, 1987. Generally, (i) a driver is not allowed to drive more than 60 hours a week, (ii) not more than 13 hours can be driven during a working day, and (iii) the driver must rest 8 hours during a working day. Pursuant to a collective agreement, drivers are paid salary based on the number of miles driven as well as an allowance based on the miles driven with respect to travel expenses, other than motor vehicle expenses.

In your letter of February 16, 2000, you have referred to a letter issued by this Directorate (962629) which makes reference to the decision of the Tax Court of Canada ("TCC") in Daniel Marcoux, Pierre Daneau, Denis Coderre and Raymond Brisson v. MNR, 91 DTC 478. You set out a number of reasons why you feel that this letter should not be taken into account in reviewing the situation that you presented:

• The TCC judgement dealt with the deduction of employment expenses.
• The court did not deal with the non-taxable allowance issue under subparagraph 6(1)(b)(vii) of the Act.
• The case mentioned (in your view, incidentally) that, on the presumption that the cash remuneration could have constituted allowances within the meaning of subparagraph 6(1)(b)(vii) of the Act, the amount was not calculated according to time spent away, but rather according to miles driven.

You have asked us to note the wording in the exempting provision that the law refers to allowances for "travelling away." You acknowledge that travelling away could be in reference to time spent away but it could, in your view, also be in reference to distance made, i.e. number of miles.

You have raised two concerns. One concern is whether the method used by the employer to compute the allowances paid to the drivers for travel expenses is acceptable to the Canada Customs and Revenue Agency, so that the allowances are considered non-taxable under paragraph 6(1)(b)(vii) of the Income Tax Act (the "Act"). The second concern is whether the non-taxable allowances, to the extent that they relate to meals, are subject to the 50% limitation pursuant to section 67.1 of the Act as these allowances are related to meals and other travel expenses (showers, laundry and lodging).

Our Comments

Comments on an actual situation involving completed transactions can only be made following a review of the relevant facts and documentation. This is the responsibility of the Audit Division of your local tax services office (see paragraph 22 of information circular 70-6R3). Thus, you should make a submission to them if you need more specific input from the Agency. We are prepared to provide the following general comments on the above situation which are not binding on the Agency with respect to any specific employer.

In determining whether allowances for travel expenses, other than those for motor vehicle expenses, are non-taxable pursuant to subparagraph 6(1)(b)(vii) of the Act, one of the requirements that must be satisfied, is that the allowance be reasonable. This can only be done on a case-by-case basis taking into consideration the particular circumstances.

We note that the exemption in subparagraph 6(1)(b)(vii) is for travel expenses, other than for the operation of a motor vehicle. In the scenario presented, the allowance is based on a mileage factor directly related to the operation of the trucks. You asked us to conclude that this is an acceptable method. In the absence of all the relevant information, it is unclear to us whether this method will, in fact, result in the calculation of a reasonable allowance for travel expenses. In order to support your position, we feel that you would have to demonstrate to the tax services office, that there is a relationship between the amount of the mileage based allowance and the average expense or cost for travel expenses that the employees will incur (even though they do not have to account for it) on an ongoing basis.

Section 67.1 of the Act sets out a general restriction on the deductibility of costs in respect of food, beverages, and entertainment to 50% of the expense. In our view, this restriction applies to allowances described in subparagraph 6(1)(b)(vii) of the Act to the extent that they relate to meals.

We trust that our comments are of assistance to you.

Yours truly,

John Oulton
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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