3 December 2002 External T.I. 2002-0173315 - TRANSPORT EMPLOYEE EXPENSES

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 CCRA.

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

Principal Issues: Can truck drivers who are employees of an employer whose principal business is not the transportation of passengers, goods or both claim travel expenses pursuant to paragraph 8(1)(g) of the Act?

Position: No.

Reasons: The wording of the provision requires us to consider the principal business of the individual's employer in determining the driver's entitlement to a claim under paragraph 8(1)(g) of the Act. The courts support CCRA's position.

2002-017331
XXXXXXXXXX Karen Power, CA
(613) 957-8953
December 3, 2002

Dear XXXXXXXXXX:

Re: Meal and Lodging Expenses

We are writing in reply to your facsimile of November 13, 2002, requesting a ruling on whether your employer should sign the TL2 form.

An advance income tax ruling, for which a fee is charged, is a written statement given by the Canada Customs and Revenue Agency (the "CCRA") stating how it will interpret specific provisions of the Income Tax Act (the Act). The interpretation is binding on the CCRA. An advance income tax ruling is only given in respect of proposed transactions and hence we are unable to provide a ruling in your situation. We are, however, prepared to offer our comments to the situation outlined by you.

Pursuant to subsection 8(2) of the Act, no deduction is allowed in computing employment income, except for the amounts provided under section 8 of the Act.

The preamble to section 8 and paragraph 8(1)(g) read as follows:

"SECTION 8: Deductions allowed

(1) In computing a taxpayer's income for a taxation year from an office or employment, there may be deducted such of the following amounts as are wholly applicable to that source or such part of the following amounts as may reasonably be regarded as applicable thereto:...

(g) Transport employee's expenses -- where the taxpayer was an employee of a person whose principal business was passenger, goods, or passenger and goods transport and the duties of the employment required the taxpayer, regularly,

(i) to travel, away from the municipality where the employer's establishment to which the taxpayer reported for work was located and away from the metropolitan area, if there is one, where it was located, on vehicles used by the employer to transport the goods or passengers, and

(ii) while so away from that municipality and metropolitan area, to make disbursements for meals and lodging,

amounts so disbursed by the taxpayer in the year to the extent that the taxpayer has not been reimbursed and is not entitled to be reimbursed in respect thereof;"

The TL2 form is completed by transport employees who are claiming expenses for meals and lodging under paragraph 8(1)(g) of the Act. This provision is restricted in its application to an individual who is an employee of a person whose principal business is the transportation of passengers and/or goods. We have, in the past, been asked to consider whether truck drivers whose duties parallel those driving for transport companies but whose employers' principal business happened to be the manufacture or retail of goods rather than the transportation of goods, would be entitled to a claim under paragraph 8(1)(g) of the Act. Our responses have confirmed that, despite the similarity in the truck drivers' duties, the wording of the provision requires us to consider the principal business of the individual's employer in determining the driver's entitlement to a claim under paragraph 8(1)(g) of the Act.

In this regard, the courts support CCRA's position, for example the Tax Court of Canada in Herman Gaudet v. Her Majesty the Queen (January 8, 1997) noted that it was bound by the decision of the Supreme Court of Canada in Imperial Oil Limited (60 DTC 1219) and cited in Creamer (76 DTC 6422). The Gaudet and Creamer decisions establish that the proper approach in applying paragraph 8(1)(g) of the Act is first to ascertain the legal entity that employed the taxpayer and then to answer the question of whether the principal business of that entity was passenger, goods, or passenger and goods transport. Where the entity does not meet the principal business test, the taxpayer is not entitled to a deduction under paragraph 8(1)(g) of the Act. In addition, the Creamer decision reasons that the employer's transportation division cannot be considered as separate entity for purposes of meeting the principal business test.

Extending the provisions of paragraph 8(1)(g) to truck drivers who are employed by a person, whose principal business is not the transportation of passengers and/or goods, would require an amendment to the Act. Should you wish to make submissions regarding such a change, you should write to the officials in the Tax Policy Branch at the Department of Finance, L'Esplanade Laurier, 140 O'Connor Street, Ottawa, Ontario, K1A 0G5, who are responsible for amendments to the Act.

Please note, that employees of an employer whose principal business is not the transportation of passengers, goods or both, may be entitled to claim travel expenses under paragraph 8(1)(h) of the Act. Paragraph 5 of Information Circular IC 73-21R7 (copy enclosed) outlines the requirements which must be satisfied in order to claim a deduction under paragraph 8(1)(h) of the Act. We have also enclosed a copy of Interpretation Bulletin IT-522R Vehicle, Travel and Sales Expenses of Employees which also discusses the requirements of paragraph 8(1)(h) of the Act.

We trust that our comments are of assistance to you.

Yours truly,

Milled Azzi, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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