20 June 2006 External T.I. 2006-0168521E5 - Clothing Allowance Benefit

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.

Principal Issues: Whether a clothing allowance would result in a taxable benefit where: 1 An employer provides a clothing allowance for which clothing receipts would be provided, 2. The clothing expenses would be incurred as a result of self-employment, and 3. An individual would work for his or her own corporation, receive a clothing allowance and retain receipts.

Position: Generally yes in all three situations except for specific exceptions such as protective clothing, uniforms, etc.

Reasons: Paragraphs 6(1)(a), (b) and 18(1)(h) of the Act.

								2006-016852
XXXXXXXXXX 							Charles Rafuse
								613-957-8967
June 20, 2006

Dear XXXXXXXXXX:

Re: Clothing Allowance/Reimbursement

This is in reply to your letter dated January 8, 2006, concerning the application of the Income Tax Act (the "Act") to a clothing allowance/reimbursement in three proposed scenarios. Specifically, you have indicated that:

1. Your employer would provide you with a clothing allowance for which you would provide the clothing receipts;

2. You would incur the clothing expenses as a result of self-employment; or

3. You would work for your own corporation, receive a clothing allowance and retain receipts.

Our Comments

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 are prepared to offer the following general comments.

Paragraph 6(1)(a) of the Act provides that a taxpayer shall include in computing income from an office or employment, the value of board, lodging and other benefits of any kind whatever received or enjoyed by the employee in the year. In addition, paragraph 6(1)(b) of the Act provides that a taxpayer shall include in computing income from an office or employment, all amounts received by the taxpayer in the year as an allowance for personal or living expenses or as an allowance for any other purpose. With the exception of uniforms or protective clothing required to be worn in performing the duties of employment, the cost of clothing is considered to be a personal expense and therefore would be taxable to an employee, if reimbursed pursuant to paragraph 6(1)(a) of the Act or if an allowance pursuant to paragraph 6(1)(b).

In terms of a self-employed individual, generally, such personal or living expenses are not deductible in computing business income pursuant to paragraph 18(1)(h) of the Act. It is therefore our view that expenses incurred by self-employed individuals for clothing, with the exception of distinctive uniforms or protective clothing required to be used at work, are not deductible in computing business income.

Where an individual incorporates his or own corporation, and is an employee of that corporation, paragraphs 6(1)(a) and (b) of the Act will apply in the manner described above. However, the cost of such benefits provided to an employee would be deductible expenses for the corporation.

We trust this information is helpful.

Yours truly,

Randy Hewlett
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch