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: Whether an allowance is reasonable for purposes of the special work site exclusion subsection 6(6) of the Income Tax Act (the Act).
Position: Question of fact
Reasons: When determining the taxable status under the Act of an allowance received by an employee, the amount is considered reasonable if it is designed to cover the out-of-pocket costs that the employee will incur for the particular purpose for which the allowance is given. This would generally hold true for subsection 6(6) allowances as well.
Randy Hewlett, B.Comm.
XXXXXXXXXX 613-957-8973
2003-001677
May 12, 2003
Dear XXXXXXXXXX:
Re: Reasonable Allowance for Employment at a Special Worksite
We are writing in response to your letter of April 30, 2003, wherein you requested a technical interpretation on the above-noted issue.
Your letter indicated that the XXXXXXXXXX (the City) hired an interim XXXXXXXXXX (the Employee), who is on secondment from another XXXXXXXXXX for a period of XXXXXXXXXX months. The Employee maintains a principal residence in another community that is a distance of approximately XXXXXXXXXX kilometres from the City. Information included with your letter indicates that the City pays the Employee monthly allowances of $XXXXXXXXXX for board, $XXXXXXXXXX for lodging, and $XXXXXXXXXX for other expenses. The information further indicates that the Employee otherwise meets the requirements of the special work site exclusion in subsection 6(6) of the Income Tax Act (the Act). Your main concern is whether the amounts are considered reasonable for purposes of the provision.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we offer the following comments.
In general terms, when determining the taxable status under the Act of an allowance received by an employee, an amount is considered reasonable if it is designed to cover the out-of-pocket costs that the employee will incur for the particular purpose for which the allowance is given. Subsection 6(6) of the Act may exempt from inclusion in employment income a reasonable allowance received by an employee in respect of personal expenses incurred by the employee for board and lodging at a special work site, and for transportation between the employee's principal residence and the special work site.
In our view, provided the $XXXXXXXXXX allowance for board and the $XXXXXXXXXX allowance for lodging are designed to cover the actual expenses incurred by the Employee in respect of "board and lodging" at the special work site, the amounts will be considered reasonable for the purpose of subsection 6(6) of the Act. You should note, however, that the $XXXXXXXXXX allowance for other expenses (regardless of the fact that it may generally be considered reasonable in terms of its purpose), will only be exempt from inclusion in the Employee's income under this provision if it too is in respect of board and lodging at the special work site, or in respect of transportation between the Employee's principal residence and the special work site.
We trust our comments will be of assistance to you.
Yours truly,
John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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