24 August 2012 External T.I. 2011-0408181E5 - Employment at Special Work Sites

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. Whether an employee working on a project for a three to five year period is considered to be performing duties of a temporary nature for the purpose of subsection 6(6) of the ITA. 2. Whether allowances received by an employee in respect of board and lodging would no longer be taxable where a self-contained domestic establishment is acquired subsequent to the commencement of an employment contract.

Position: 1. Question of fact. 2. Yes

Reasons: 1. While it has been established that the two year period noted in paragraphs 5 and 6 in IT-91R4 is to be viewed as a guideline, it is always a question of fact whether the duties of employment were of a temporary nature for purposes of subsection 6(6) of the Act. 2. Where all other conditions have been satisfied, an employee acquiring a self-contained domestic establishment subsequent to the commencement of an employment contract would be entitled to the special work site exemption for a period during which the employee maintained a self-contained domestic establishment at another location as his or her principal place of residence.

XXXXXXXXXX
2011-040818
T. Baltkois

August 24, 2012

Dear XXXXXXXXXX:

Re: Employment at Special Work Sites

We are writing in response to your letter dated May 31, 2011, in which you requested our comments on two scenarios concerning the payment of monthly housing allowances to employees who have been transferred from the Canadian employer’s non-resident parent company to work on contract in Canada for the Canadian employer. In both cases, clarification has been requested as to whether the exemption provided by subsection 6(6) of the Income Tax Act (“the Act”) in respect of special work sites would be applicable.

In the first scenario, an employee was transferred to Canada on a work visa with a 3 year contract, with an optional two year extension. The employee has owned a residence in XXXXXXXXXX, which is not being rented throughout the employment contract and currently rents accommodations while working in Canada.

In the second scenario, the employee has a 2 year employment contract, but only purchased a residence in XXXXXXXXXX after working in Canada for XXXXXXXXXX months. The employer initially treated the allowances as taxable benefits on the basis that the employee did not maintain a self-contained domestic establishment (“SCDE”).

Generally, the value of employer-provided board and lodging or transportation to and from a particular work location is included in an employee's income for tax purposes pursuant to subsection 6(1) of the Act. However, subsection 6(6) of the Act provides an exemption in limited circumstances for employment at a special work site or a remote work location. Subparagraph 6(6)(a)(i) of the Act excludes from an employee's income, the value of employment benefits received or enjoyed, or a reasonable allowance in respect of expenses incurred by the employee for board and lodging at a special work site.

Paragraphs 5 and 6 of Interpretation Bulletin IT-91R4, Employment at Special Work Sites or Remote Work Locations, contain comments on whether employment duties at a special work site will be considered temporary for purposes of subsection 6(6) of the ITA. The term “temporary”, while not defined in the Act, generally refers to situations where continuous employment is limited to a period of two years. This is, however, a general rule and there are situations in which the duration of employment could exceed the two year guideline and the duties performed may still be considered temporary.

Some of the factors which may indicate that the duties are of a temporary nature despite the length of the employment contract include:

• whether the employee's substantive position is still maintained at another work location;
• whether the employee can be readily reassigned to another work location in or outside of Canada; and
• what other social ties were maintained at the location of the principal place of residence (i.e. does the employee receive social benefits from that jurisdiction, do they file tax returns as a resident of that jurisdiction, etc.)

Where it has been established that an employee is performing duties of a temporary nature, another requirement which must be met in order for the exemption provided by subsection 6(6) of the Act to apply, is that the employee must maintain at another location, a SCDE as the employee's principal place of residence throughout the period.

Accordingly, in the context of subparagraph 6(6)(a)(i) of the Act, the term "maintain" should be interpreted as meaning that the employee actually owns or rents a SCDE that is his or her principal place of residence and is responsible for its upkeep.

It is our view that where all other conditions set out in subsection 6(6) of the Act have been satisfied, employees may exclude the value of employer-provided board and lodging from income for a period during which they performed duties of a temporary nature at a special work site and maintained a SCDE at another location as their principal place of residence.

We trust these comments will be of assistance to you.

Yours truly,

Nerill Thomas-Wilkinson
Manager
for Director
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch