3 November 2008 External T.I. 2008-0284191E5 - Special Work Site - Outside Canada

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:

1. Does the "special work site" exemption apply to locations outside Canada?

2. Should a board and lodging allowance paid in respect of a "special work site" be reported on an employee's T4 slip?

3. Is an employee required to retain receipts for board and lodging and provide them to his employer?

4. Are there any CRA guidelines with respect to reasonable "per diem" rates for various countries?

Position:

1. Yes.

2. Question of fact. An allowance for board and lodging at a "special work site" will be taxable and should therefore be reported on an employee's T4 slip where it does not meet the conditions of subsection 6(6) of the Act (including the amount being in excess of a reasonable amount).

3. No.

4. No.

Reasons:

1. Subsection 6(6) of the Act does not preclude a "special work site" from being a location outside Canada.

2. An allowance for an employee's board and lodging at a "special work site" will be non-taxable and will not need to be reported on an employee's T4 slip, provided the taxpayer meets the requirements in subsection 6(6) of the Act.

3. A board and lodging allowance is non-taxable if it is reasonable regardless of the amount actually spent by the employee.

4. An allowance which is based on a reasonable estimate of the costs of such board and lodging in the surrounding area would be considered acceptable for this purpose.

                                                2008-028419
XXXXXXXXXX                                      Renee Sigouin
(613) 957-2128
November 3, 2008

Dear XXXXXXXXXX :

Re: Special Work Site Exemption

We are writing in response to your email of June 27, 2008 wherein you requested our comments regarding whether the "special work site" exemption under subsection 6(6) of the Income Tax Act (the "Act") can apply to a work site outside of Canada. You have also inquired about the T4 reporting and expense substantiation requirements for related board and lodging allowances.

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 a request for an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, "Advanced Income Tax Rulings", dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the internet at http://www.cra-arc.gc.ca. Where the particular transactions are complete, the inquiry should be addressed to the relevant tax services office, a list of which is available on the "Contact Us" page of the CRA website. Although we cannot comment on your specific situation, we are prepared to provide the following comments in respect of the issues that you raised. Please note, however, that these comments are of a general nature only and are not binding on the CRA.

We understand that you propose to assign an employee to work in XXXXXXXXXX for a period of approximately XXXXXXXXXX months. During this time, you will provide the employee with a living allowance to cover his board and lodging expenses. The employee will maintain his principal place of residence in Canada for the duration of his assignment.

Generally, the value of board and lodging provided by an employer is included in the employee's income under paragraph 6(1)(a) of the Act. An allowance paid to an employee for personal and living expenses is included in an employee's income under paragraph 6(1)(b) of the Act, unless it is described in one of the listed exceptions. Specifically, paragraph 6(6)(a) of the Act excludes from the income of an employee, the value of, or a reasonable allowance in respect of, an employee's board and lodging for a period during which the employee performs duties at a "special work site" or a "remote work location".

As discussed in Interpretation Bulletin IT-91R4, "Employment at Special Work Sites or Remote Work Locations" ("IT-91R4") the "special work site" exclusion will apply where all of the following requirements are met:

a) The duties of the office or employment performed by the individual at the work location are of a "temporary nature";
b) Throughout the period the duties of the office or employment are performed at the work location, the individual maintains at another location a self-contained domestic establishment as the individual's principal place of residence, which is available for the individual's occupancy and is not rented by the individual to any other person;
c) The distance between the individual's principal place of residence and the work location is such that the individual cannot reasonably be expected to commute daily; and
d) The period the individual is required to be away from the principal place of residence at the work location because of the duties of the office or employment is at least 36 hours.

As noted in paragraph 5 of IT-91R4, the term "temporary" is not defined in the Act. However, as a general rule, duties will be considered to be of a temporary nature if it can reasonably be expected that they will not provide continuous employment beyond a period of two years. The determination of the expected duration of employment must be made on the basis of the facts known at its commencement.

It is also noted in paragraph 9 of IT-91R4 that as a general rule, an employee will not be expected to return to his or her principal place of residence if the work site is more than 80 kilometers from the employee's principal place of residence by the most direct route normally traveled in the circumstances.

A special work site does not have to posses any particular characteristics nor does it have to be located in Canada to fall within the parameters of subsection 6(6) of the Act. The courts have stated that "a special work site may be any place in the world, including a large metropolitan city such as Toronto, New York or New Delhi; or it may be a place such as Afghanistan or Rochester, New York" (Jaffar v. R., 2002 D.T.C 3853).

If it meets the conditions in subsection 6(6) of the Act, an allowance for an employee's board and lodging at a "special work site" will be non-taxable and therefore will not need to be reported on an employee's T4 slip, provided it is not in excess of a reasonable amount. The reasonableness of an allowance is a question of fact. The allowance should be based on an estimate of the cost of board and lodging in the surrounding area. The allowance is non-taxable if it is reasonable regardless of the amount actually spent by the individual. Accordingly, an employee is not required to maintain a record of, or provide his employer with receipts in respect of, the amount actually spent on board and lodging for purposes of subsection 6(6) of the Act. Where the allowance is in excess of a reasonable amount or is expected to cover expenses other than board and lodging, it would not be exempt by reason of subsection 6(6) of the Act and should therefore be reported on the employee's T4 slip.

There are no CRA guidelines with respect to what is considered a reasonable "per diem" board and housing allowance for particular countries for purposes of subsection 6(6) of the Act. As stated above, an allowance which is based on a reasonable estimate of the costs of such board and lodging in the surrounding area would be considered acceptable for this purpose.

We trust these comments will be of assistance.

Yours truly,

Renée Shields
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch