Translation disclaimer
This translation was prepared by Tax Interpretations Inc. The CRA did not issue this document in the language in which it now appears, and is not responsible for any errors in its translation that might impact a reader’s understanding of it or the position(s) taken therein. See also the general Disclaimer below.
Principal Issues: 1. Whether the employment of a taxpayer is temporary in nature pursuant to subparagraph 6(6)a)(i) of the Income Tax Act (the Act)?
2. Whether the value of a securized lodging, which the rent was directly paid to the landlord by the employer may be related to the ceiling amounts for housing benefits paid in prescribed zones pursuant to Guide RC4054?
Position: 1. Question of fact. General comments. Review of the criteria determining what is a temporary work.
2. No
Reasons: 1. Depends on the evidence if the employee has a permanent employment or if the intention of the employee is to work at a special work site outside Canada on a temporary basis.
2. Guide RC4054 applies only to qualifying communities which are listed in Publication T4039. The ceiling amounts indicated in Guide RC4054 are with respect to section 110.7 of the Act.
XXXXXXXXXX
2013-048132
Lucie Allaire, Advocate,
CPA, CGA, D. Fisc.
May 7, 2013
Dear Sir,
Subject: Employment at a special work site
This letter is in response to your e-mails of February 26, March 7 and March 11, 2013, in which you requested our opinion regarding the application of subsection 6(6) of the Income Tax Act (the “Act").
Unless otherwise indicated, all statutory references herein are to the provisions of the Act.
Particular Situation
You have an employment contract with a foreign company (the "Employer") and have worked for the foreign company in the capital of a foreign country ("New Workplace").
You were staying at different hotels during XXXXXXXXXX for your work at the New Workplace. Subsequently, at your request and for security reasons, you resided in an apartment located in a secure compound for a period of XXXXXXXXXX. The Employer paid the landlord directly for the rental expenses related to your accommodation.
After an approximate period of XXXXXXXXXX ("Period of Work"), the Employer ceased operations and terminated your employment agreement. It seems that you have, contrary to your intentions, benefited from housing in the secure compound during a period during which you no longer occupied your duties with the Employer.
Your employment with the Employer was new to you because it was not a situation where you were previously employed with the Employer and then transferred abroad. Specifically, it was not a situation where a position connected to the Employer was maintained for you, in Canada or elsewhere, during your period of work at the New Workplace.
You indicated that during the entire period in which you worked at New Workplace, you owned a residence in Canada where your family resided. This property remained at your disposal throughout the work period and you specified that it has not been rented to another person.
Finally, you stated that upon returning to Canada after the end of your work at the New Workplace, you were unemployed.
Your questions
You wish to know if the requirements of subsection 6(6) are met so as not to include in the computation of your taxable income the board and lodging expenses that were paid for you by the Employer while you were working at the New Workplace.
In addition, you wish to know if the rent limits in the prescribed areas listed in Guide RC4054 apply to your situation.
Our Comments
As stated in paragraph 22 of Information Circular 70-6R5 dated May 17, 2002, it is the practice of the Canada Revenue Agency (the "CRA") not to issue a written opinion regarding proposed transactions otherwise than through advance rulings. Furthermore, when it comes to determining whether a completed transaction has received adequate tax treatment, the determination is made first by our Tax Services Offices as a result of their review of all facts and documents, which is usually performed as part of an audit engagement. However, we can offer the following general comments that may be helpful to you.
Under paragraph 6(1)(a), the value of board, lodging and other benefits of any kind whatever received or enjoyed by the taxpayer in the year in respect of, in the course of, or by virtue of an office or employment must be included in computing the income of the taxpayer for a taxation year as income from an office or employment.
Subsection 6(6) provides an exception in specific circumstances for employment at a special work site or remote location. Since you are only concerned with the rules at a special work site, our comments will focus on the application of subparagraph 6(6)(a)(i).
Generally, subparagraph 6(6)(a)(i) provides that a taxpayer does not have to include in the computing of the taxpayer’s income a benefit under subsection 6(1) if that benefit represents the value of, or an allowance (not in excess of a reasonable amount) in respect of expenses the taxpayer has incurred for the taxpayer’s board and lodging for a period at a special work site.
This special work site must be a place where the work done by the taxpayer is of a temporary nature. In addition, the taxpayer must maintain at another location a self-contained domestic establishment as the taxpayer’s principal place of residence that was, throughout the period, available for the taxpayer’s occupancy and not rented by the taxpayer to any other person, and to which, by reason of distance, the taxpayer could not reasonably be expected to have returned daily from the special work site.
As a general matter, the purpose of subparagraph 6(6)(a)(i) is to recognize that where an employee is required to work temporarily in a workplace located at a significant distance from where the employee usually resides, it is unreasonable to expect the employee to dispose of the employee’s current residence and move to the new location for a short period of time. Thus, this subsection recognizes that where an employee continues to incur expenses in order to maintain the employee’s principal place of residence without earning rental income, a benefit is not accorded on the employee if the employer pays an allowance to or reimburses the employee for expenses incurred in connection with a temporary residence at the new place of employment. In addition, in our opinion, an employee can only have one principal place of residence.
The question of whether the value of the expenses for the board and lodging in the Particular Situation may be excluded from your income under subsection 6(6) is a question of fact upon which we cannot make any final comments. This determination can only be made in light of an examination of all relevant facts, such as the nature of the employment contract, including the agreed upon period of time for which the employee was hired at the employee’s new place of work, the presence or absence of a renewal guarantee, as well as the nature of the work.
To begin with, one of the conditions for the application of clause 6(6)(a)(i)(A) is that the employee must maintain at another location a self-contained domestic establishment as the taxpayer’s principal place of residence that was, throughout the period, available for the taxpayer’s occupancy and not rented by the taxpayer to any other person. In the Particular Situation, we have assumed that you satisfy this condition. Note that the determination of the employee's principal place of residence is a question of fact.
Furthermore, to determine whether subparagraph 6(6)(a)(i) applies to your situation, it is necessary to assess whether the work you did in the New Workplace was temporary in nature. In this regard, we are of the opinion that the mere fact that an employee maintains a principal residence in a place other than a new workplace does not automatically mean that the employee's work at that new place of work is of a temporary nature, since the employee may have personal reasons for keeping the residence.
Paragraphs 5 and 6 of Interpretation Bulletin IT-91R4, Employment at Special Work Sites or Remote Work Locations, which is available on the CRA Web site at http://www.cra-arc.gc.ca/ E / pub / tp / it91r4 / READ ME.html, provide guidelines as to whether work at a particular job site is temporary in nature. In general, the work is considered temporary if it can reasonably be expected that it does not constitute a continuous employment of more than two years. However, this two-year limit is not automatically applied if the evidence demonstrates that the work done by an employee is of a temporary nature. In addition, the CRA considers that the expression “duties performed by the taxpayer were of a temporary nature” refers to the duration of the duties performed by the individual employee, not the expected duration of the project undertaken by the employer as a whole.
A determination of whether an employee's work is work of a temporary nature must be based on facts known at the beginning of the employment. For example, a taxpayer who accepts a new full-time, permanent job abroad, could not claim, at the time the job ended, that the taxpayer’s work was temporary in nature.
In addition, it may be that for different reasons an employee did not stay more than two years in one place, but this does not mean that the intention of the parties at the time of the signing of the employment contract was that the employee’s work be of a temporary nature. If the employment is for an indeterminate period, the fact that the employment or assignment ends before a period of two years does not ensure that the employment is temporary in nature and eligible for the application of subparagraph 6(6)(a)(i).
Finally, if a contract of employment includes the possibility of renewing the term of employment from the outset, or if a taxpayer can expect to perform the taxpayer’s duties with the taxpayer’s employer for a period exceeding two years, the CRA tends to believe that the work is not temporary in nature.
Thus, in the Particular Situation, the application of subparagraph 6(6)(a)(i) is based on determination of fact. The value of the expenses related to the board or lodging could be excluded from the computation of your income only if your work at the New Workplace is of a temporary nature, if your property in Canada is a self-contained domestic establishment considered to be your principal place of residence and if all other conditions for the application of subparagraph 6(6)(a)(i) are met.
Furthermore, with respect to your second question, the limits on housing benefits paid in prescribed zones, which are specified in Guide RC4054, apply only to employees who live in a northern zone or prescribed zones without a developed rental market. Qualifying communities are listed in T4039, Northern Residents Deductions - Places in Prescribed Zones. Consequently, this is not your situation.
In the situation you submitted, you could only exclude the amount of expenses related to your housing for the period during which you performed your work at the New Workplace if the following requirements were met:
- while you were working at the New Workplace, you maintained elsewhere (in Canada in this case) a self-contained domestic establishment that was your principal place of residence; and
- the employment you had in the New Workplace was temporary in nature.
In the event that these two conditions are not met, the total value of the expenses related to your housing located in a secure enclosure at the New Workplace should be included in the computation of your taxable income under paragraph 6(1)(a). However, you cannot claim the deduction in subparagraph 6(6)(a)(i) for any period during which you were not employed by the Employer.
These comments do not constitute advance income tax rulings and do not bind us in respect of a particular factual situation.
Best regards,
François Bordeleau, Advocate
Manager
Business and Employment Income Division, Section I
Income Tax Rulings Directorate
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