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 an allowance provided to Members of the Provincial legislative assembly of XXXXXXXXXX for maintaining temporary residences in XXXXXXXXXX can be excluded from income pursuant to subparagraph 6(1)(b)(vii) of the Income Tax Act.
Position: A Member of the Provincial Legislative Assembly's constituency office can be considered to be the Member's regular place of employment and a reasonable travel allowance for expenses related to accommodation while attending official business in the Provincial capital will likely be covered by the exception in subparagraph 6(1)(b)(vii) of the Income Tax Act. The reasonableness of an allowance is a question of fact that can only be determined on a case by case basis.
Reasons: See analysis.
November 8, 2019
Re: Tax Treatment of Temporary Residence Allowance
We are writing in response to your correspondence of July 17, 2019 regarding the tax treatment of a temporary residence allowances provided to Members of the Legislative Assembly of XXXXXXXXXX (the “Assembly”). More specifically, you have asked whether a temporary residence allowance paid to the Assembly is a reasonable allowance for travel expenses and is not required to be included in income pursuant to subparagraph 6(1)(b)(vii) of the Income Tax Act (the “Act”).
Based on the information you have provided and our subsequent telephone conversation (Witteveen / XXXXXXXXXX) of September 10, 2019, it is our understanding that:
- A Member of the Assembly may claim a temporary residence allowance where they maintain a permanent residence located XXXXXXXXXX km from the XXXXXXXXXX.
- An allowance may also be claimed by Members with constituencies outside of XXXXXXXXXX, but with a permanent residence less than XXXXXXXXXX kilometres from the XXXXXXXXXX if the Member works more than XXXXXXXXXX hours in a day.
- The monthly maximum allowance for Members is not calculated based on their time spent in or near XXXXXXXXXX, but on the basis of ownership of a temporary residence in or near XXXXXXXXXX.
- The Assembly typically sits for approximately XXXXXXXXXX weeks in a year (excluding adjournments).
When the Assembly is not sitting it is your view that the primary place of work for Members to conduct constituency business is the constituency office.
This technical interpretation provides general comments about the provisions of the Income Tax Act (the “Act”) and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R9, Advance Income Tax Rulings and Technical Interpretations.
An allowance or advance is defined in Guide T4130, Employer’s Guide - Taxable Benefits and Allowances as any periodic or lump-sum payment that an employee receives without having to account for its use. Paragraph 6(1)(b) of the Act requires that a taxpayer include in employment income all amounts received by virtue of an office or employment as an allowance for personal or living expenses. However, there are exceptions to the general rule. In particular, subparagraph 6(1)(b)(vii) of the Act specifically excludes from income reasonable travel allowances, namely all amounts received by an employee from the employer for travelling away from the municipality (and the metropolitan area, if there was one) where the employer’s establishment, at which the employee ordinarily worked, was located.
It would appear based on the information provided that Members of the Assembly will be considered employees pursuant to the definitions of “office” and “employee” in subsection 248(1) of the Act. In certain circumstances the duties of some Members may be centred around their constituency office. Therefore, reasonable allowances provided to some Members for the provision of temporary accommodation in XXXXXXXXXX may qualify for exclusion from income as allowances for travel outside of the municipality and metropolitan area where the employer’s establishment, at which the employee ordinarily worked, was located for the purposes of subparagraph 6(1)(b)(vii) of the Act.
The reasonableness of a travel allowance (in this case, an allowance for temporary accommodation) is always a question of fact to be considered in light of all the relevant circumstances. An allowance for accommodation expenses will not be considered reasonable, however, if it does not represent an estimate of the cost of accommodation that may be incurred by the employee during the travel that generated entitlement to the allowance. In this respect, based on the information provided, the allowance for Members whose permanent residence is located within XXXXXXXXXX kilometers of the XXXXXXXXXX does not appear to be supported by evidence to enable a determination that accommodation expenses are required to be incurred for travel in the course of their duties. Whether the allowance is reasonable with respect to Members who maintain a principal residence more than XXXXXXXXXX kilometres from the XXXXXXXXXX would need to be assessed on a case by case basis in light of all the relevant circumstances.
We trust these comments will be helpful.
Sandro D’Angelo, CPA, CMA
Business and Employment Income Section
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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