10 January 2001 External T.I. 2000-0044955 - MEAL ALLOW. PAID BY EMPLOYERS

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: Deductibility of Meal Allowance paid to Employees

Position: 50% limitation does not apply if allowance is excluded from income under 6(6)(a)(i) and employees are working at sites in Canada that are at least 30 km from urban area with population of at least 40,000; question of fact whether 6(6) or
6(1)(b)(vii) applies to allowance

Reasons: Consistent with earlier opinions, and wording of statute.

									2000-004495
XXXXXXXXXX 								Wayne Antle, CGA
(613)  957-2102
January 10, 2001

Dear XXXXXXXXXX:

Re: Deductibility of Meal Allowances Paid to Employees

This is in response to your letter dated July 4, 2000 concerning whether an employer which pays a meal allowance to its employees is restricted to a deduction of only 50% of the allowance.

The situation described in your letter appears to relate to a completed transaction. As noted in Information Circular 70-6R3, confirmation of the tax consequences on completed transactions must be obtained from your local tax services office. However, we can provide the following general comments that may be relevant to your situation but which are not binding on the Canada Customs and Revenue Agency (the "Agency"). In your correspondence and our telephone conversation (Antle/XXXXXXXXXX) on November 21, 2000, you asked us to consider the following facts:

An employer that is involved in the construction and maintenance of power line equipment, has employees that work exclusively in the field at various job sites throughout several provinces. These employees do not regularly report to the employer's offices in order to perform their duties. In most cases, the employees in the field are away from their principal place of residence for at least 36 hours. When the employees are unable to return home daily, they are paid a per diem meal allowance.

Our comments

Subsection 67.1(1) of the Income Tax Act (the "Act") provides that costs in respect of the human consumption of food or beverages are deemed to be 50% of the lesser of the amount actually paid or payable in respect of the food or beverages, and an amount that would be reasonable in the circumstances to pay for such items (the 50% limitation). Subsection 67.1(2) of the Act provides several exceptions to the 50% limitation. In particular, paragraph 67.1(2)(e) of the Act provides that the 50% limitation does not apply where:

• the amount was not in respect of a conference, convention, seminar, or similar event,
• the allowance would have been included in the employee's income but for subparagraph 6(6)(a)(i) of the Act (special work site rules), and
• the amount is paid in respect of a work site in Canada that is not in an urban area of more than 40,000 people, and is at least thirty kilometers from such an urban area.

However, if an allowance for food or beverages is excluded from income under one of the provisions in paragraph 6(1)(b) of the Act, then the 50% limitation would apply. In the situation outlined above, the issue to be considered is whether the meal allowance would be excluded from income under either subparagraph 6(1)(b)(vii) or 6(6)(a)(i) of the Act.

Subparagraph 6(1)(b)(vii) applies where an allowance for travel expenses, other than a motor vehicle allowance, is received by an employee (other than one employed in connection with the selling of property or negotiating of contracts for the employer), and

1. the allowance is a reasonable amount,
2. the allowance is received for travelling away from the municipality and the metropolitan area (if there is one) where the employer's establishment, at which the employee ordinarily worked or to which the employee ordinarily reported, is located, and
3. the travelling is done in the performance of the duties of the office or employment.

Subsection 6(6) of the Act excludes an allowance from an employee's income when it is received in respect of expenses incurred by the employee for board and lodging during a period at a special work site ("special work site exclusion"). For the special work site exclusion to apply, all of the following requirements must be met:

• the employee must have worked at a special work site, being a location at which the duties performed by the employee were of a temporary nature;
• the employee maintained at another location a self-contained domestic establishment as the employee's principal place of residence,

(i) that was, throughout the period, available for the employee's occupancy and not rented by the employee to any other person, and

(ii) to which, by reason of distance, the employee could not reasonably be expected to have returned daily from the special work site; and

• the period while the employee was required by his or her duties to be away from the employee's principal place of residence, or to be at the special work site, was at least 36 hours.

See Interpretation Bulletin IT-91R4, Employment at Special or Remote Work Locations, for further details.

The determination of whether a particular allowance is excluded from income under either subsection 6(6) or subparagraph 6(1)(b)(vii) of the Act can only be made after reviewing all of the facts, including the employment contract, the authority under which the allowance is paid, the nature of the employment, and the frequency and duration of an employee's trips. In our view, the exclusion under subparagraph 6(1)(b)(vii) of the Act applies to reasonable allowances for travel expenses, and, therefore, would not be applicable in a situation where a similar allowance was paid with respect to a stay in one place for a period of such duration that it was essentially a sojourn as opposed to travelling.

We have also considered the application of subparagraph 6(1)(b)(vii) of the Act to construction workers who perform their duties at several different job sites during the year. It is our view that, generally, the job site to which a construction worker travels is the location where he or she ordinarily reports to carry out the duties of employment. Therefore, since the employees are not travelling away from the employer's establishment at which the employee ordinarily worked, or to which the employee reported, any allowance paid to the employee for meals would not be exempt under subparagraph 6(1)(b)(vii) of the Act.

We trust that our comments will be of assistance.

Yours truly

John Oulton, CA
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch