11 May 2000 External T.I. 2000-0015815 - NORTHERN RESIDENTS DEDUCTION

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: Can an employer designate or reclassify an existing portion of an employee's wages as a Northern Travel Benefit.

Position: Generally, No

Reasons: Generally, there must be a link between the travel incurred and the amount paid by the employer.

XXXXXXXXXX 2000-001581
C. Tremblay
Attention: XXXXXXXXXX

May 11, 2000

Dear Sir,

This is in reply to your letter of March 17, 2000, wherein you ask whether it is permissible to report arbitrary notional amounts of an employee's remuneration in box 14, code 32, of the T-4 in order to permit those employees who reside in prescribed zones to claim travel expenses under subsection 110.7(1) of the Income Tax Act (the "Act") and file Form T2222, Northern Residents Deductions.

Our Comments:

Section 110.7 of the Act provides, in computing an individual's taxable income for a taxation year, a special deduction in respect of certain travel benefits and living costs where the individual resides, throughout a period of at least 6 consecutive months commencing or ending in the year, in a "prescribed northern zone" or a "prescribed intermediate zone" as defined in section 7303.1 of the Income Tax Regulations (the "Regulations"). Generally, the deduction in respect of employee travel benefits provided in paragraph 110.7(1)(a) of the Act, offsets the income inclusion in respect of benefits provided by an employer to an employee or the employee's family with respect to trips made for the purpose of obtaining necessary medical services not available locally or with respect to traveling expenses in connection with not more than two other trips per year.

In order for the amounts paid by an employer to be "...in respect of travel expenses incurred by the taxpayer..." as required by paragraph 110.7(1)(a) of the Act, there must be a connection between the actual travel expenses incurred by a taxpayer or a member of a taxpayer's household and the amounts paid by the taxpayer's employer to defray those costs. Generally such amounts are paid by an employer by reimbursement after the trip, however, the Canada Customs and Revenue Agency has accepted that an employer can pay a reasonable travel allowance before a trip, such as a certain amount per hour provided the details of such an employee benefit are specified in an employment contract. However, where the employer does not pay additional compensation but simply re-characterizes or designates existing wages or salary where the facts do not support that a portion of the existing wages or salaries were originally intended to be in respect of travel expenses, in our view, the amount is not paid in respect of travel expenses.

Accordingly, an arbitrary amount of an employee's remuneration should not be added to box 14, code 32 of the T-4 slip as it would generally not be considered to be in respect of "travel expenses incurred by the taxpayer".

We trust our comments will be of assistance.

Yours truly,

Jim Wilson
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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