14 April 2009 External T.I. 2009-0306571E5 - Northern Residents Deduction

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: Deductibility of certain travel costs and other expenses in a prescribed zone.

Position: Question of fact, but in this case the additional amounts do not appear to be deductible.

Reasons: May not reside in a prescribed zone throughout a qualifying period.

XXXXXXXXXX 							2009-030657
								Michael Cooke, CA
April 14, 2009

Dear XXXXXXXXXX :

Re: Northern Residents Deduction

We are writing in response to your correspondence dated January 20, 2009, wherein you requested confirmation of your ability to claim a deduction for certain travel and telephone expenses.

The facts as we understand them are briefly summarized as follows:

You are currently employed near XXXXXXXXXX (the "Work Site") which, as you have indicated, is located in a "prescribed intermediate zone" for the purposes of the Northern Residents Deduction ("NRD"). Your permanent home is located in XXXXXXXXXX . You indicate that your employer pays for most of your travel costs to get to/from the Work Site but does not pay for any costs for travel between your home and the nearest major airport which is located in XXXXXXXXXX . Your employer also pays for your room and board while you are at the Work Site. It appears that you typically work for approximately three weeks and return home after each such work period.

Although not specified in your letter, it appears that no benefit for the employer-paid travel and room and board has been included on your T4. This may be due to the special work site or the remote work location exclusion described in subsection 6(6) of the Income Tax Act (the "Act").

Since the situation outlined in your letter relates to a factual one involving a specific taxpayer you should submit all relevant facts and documentation to the appropriate Tax Services Office ("TSO") for their views. A list of TSOs is available on the "Contact Us" page of the Canada Revenue Agency's website as well as copies of any publications mentioned herein. However, we are prepared to offer the following general comments.

In computing an individual's taxable income for a taxation year, section 110.7 of the Act provides for a NRD in respect of certain travel and household costs provided the individual resides, throughout a period of at least 6 consecutive months commencing or ending in the year (referred to as the "qualifying period"), in a "prescribed northern zone" or a "prescribed intermediate zone" (collectively referred to as a "prescribed zone") as defined in section 7303.1 of the Income Tax Regulations. Whether or not an individual meets the conditions of subsection 110.7(1) of the Act for a particular taxation year can only be determined after a review of all of the relevant facts.

In general, where an employee works at a location in a prescribed zone and does not maintain a self-contained domestic establishment in a prescribed zone and regularly returns to his/her principal place of residence that is located outside of any prescribed zone it is our view that such an individual would not be entitled to the NRD. This is because the individual would not be considered to reside in a prescribed zone for a qualifying period commencing or ending in the year. It appears that this general position applies to your situation. For additional information on NRD, including a discussion of the interaction between this deduction and the "special work site" or "remote work location" exclusions in subsection 6(6) of the Act, please refer to Interpretation Bulletin IT-91R4, "Employment at Special Work Sites or Remote Work Locations".

While the NRD is a specific provision of the Act that permits a deduction in computing income from employment where the various conditions are met, the general rule for deducting employment expenses is in subsection 8(2) of the Act. Subsection 8(2) of the Act provides that no deductions are allowed in computing a taxpayer's income for a taxation year from an office or employment except as specifically enumerated in section 8 of the Act. Our general views regarding the deductibility of an employee's travel costs, motor vehicle expenses and other employment related expenses are contained in Interpretation Bulletin IT-522R, "Vehicle, Travel and Sales Expenses of Employees". The cost of travel between an employee's home and the place where the employee regularly reports to work, irrespective of the distance, is generally considered to be personal travel and would not be deductible. In addition, the cost of personal telephone calls would never be deductible in computing an employee's income from employment.

We would like to mention, however, that subsection 118(10) of the Act provides a non-refundable tax credit called the "Canada Employment Credit" which recognizes that many employees often incur various types of work related expenses that may not otherwise be deductible under the Act. In order to claim this credit it is not necessary to prove a specific employment expense. Rather, the credit is simply calculated as the lesser of: an indexed amount ($1,019 for 2008); or the total of all income from office or employment for the year (not including any deductions from employment income otherwise permitted by section 8 of the Act); multiplied by the appropriate percentage for the year. For 2008, the appropriate percentage is 15%.

Any further questions concerning this matter should be directed to your local TSO.

We trust the above comments are of assistance.

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