28 November 1986 Income Tax Severed Letter 5-2121 - []

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.

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Small Business and General Division R. Langevin

Tel. (613)957-2138

November 28, 1986

Dear Sirs:

This is in reply to your letter dated August 28, 1986. We regret the unavoidable delay in our reply. You have requested our technical inter- pretation of the Income Tax Act (the "Act") in respect of the following set of circumstances:

1. Company A employs a number of consultants who perform their duties at client premises which are for the most part located outside of the municipality and metropolitan area of Company A's establishment.

2. All assignments are of a temporary nature and normally require the employee to be away from his principal place of residence for periods of at least 36 hours.

3. Although employees do not physically report to Company A's establish- ment, they do submit reports to and receive their remuneration from Company A's establishment.

4. The employees are not, for the most part, employed in connection with the selling of property or negotiating of contracts for Company A.

5. Under the contract of employment, the employees are required to pay for meals and accommodation while on assignment. Other travel expen- ses are borne directly by Company A.

6. The employees are entitled to a per diem allowance of $60 per day while on location. The amount of this allowance is normally not sufficient to cover actual living costs incurred by the employee while on assignment.

It is your view, that the per diem allowance received by the employee may qualify for exclusion from income under the provisions of both subpara- graphs 6(1)(b)(vii) and 6(6)(a)(i) of the Act. You have suggested that the preamble to subsection 6(6) of the Act (which reads "notwithstanding subsection (1)") may render subparagraph 6(1)(b)(vii) of the Act inoper-- able inasmuch as it is the more specific of these two provisions. It is your view that the amount of the allowance would thereby not be consid- ered to have been excluded from income under subparagraph 6(1)(b)(vii) of the Act for the purposes of subparagraph 8(1)(h)(iii) of the Act, with the result that an employee would be entitled to a full claim for amounts expended on meals and accomodation under paragraph 8(1)(h) of the Act notwithstanding that the related allowance has been excluded from income under subsection 6(6) of the Act.

It is our view that the major criterion to be considered in deciding whether a reasonable allowance paid to an employee would not be included in income under either subparagraph 6(1)(b)(vii) or subsection 6(6) of the Act is one of time. The exclusion under subparagraph 6(1)(b)(vii) of the Act applies to "travelling expenses" and therefore would not be ap- plicable in a situation where a similar allowance was paid with respect to a stay in one place for a period of such duration that it was tant- amount to a sojourn as opposed to travelling. In our view, it is unlike- ly that one would have a choice in a situation where an employee was working at a special work site whether the exclusion under subparagraph 6(1)(b)(vii) or subsection 6(6) of the Act would apply inasmuch as it is unlikely that a situation would arise where both exclusions could argua- bly be said to apply to the same set of circumstances. Accordingly, it is a question of fact in each case whether either of the subsection 6(6) or subparagraph 6(1)(b)(vii) exclusions will apply.

We note that you have not specified the precise nature of the supplemen- tary "living costs" which an employee may incur personally. Although it is a question of fact as to which of the "living costs" you have referred to constitute "travelling expenses" for the purposes of the Act, we offer the following general comments.

In circumstances in which an employee does receive a travelling allowance that is excluded from his income by subparagraph 6(1)(b)(vii) of the Act and incurs supplementary costs in the form of a second type of travelling expense, it is the Department's position, as stated in subparagraph 25(a) of Interpretation Bulletin IT-272R , that a claim for that second type of travelling expense paid out of the employee's own pocket will not be disallowed to the extent that the expenses are reasonable in the cir- cumstances. Therefore, if the living costs mentioned refer only to meals and accommodation, the difference between the actual amount paid by the employee and the $60 allowance for that type of expense (if that allow- ance is determined to be for travelling expenses pursuant to subparagraph 6(1)(b)(vii) of the Act) would not be deductible by the employee under paragraph 8(1)(h) of the Act.

In the event that the particular facts of a case demonstrate that an al- lowance is received in respect of employment at a special work site or location pursuant to subsection 6(6) of the Act, any amounts expended by the employee in excess of that allowance would not be deductible inasmuch as such expenses could not be characterized as "travelling" expenses by virtue of the duration of the stay that would be involved in a sojourn at a special work site with the result that the deduction in respect of travelling expenses under paragraph 8(1)(h) of the Act would not be available.

In reply to your request for confirmation that the allowance you have described should be included in income pursuant to paragraph 6(1)(a) of the Act without reference to the exclusion under subparagraph 6(1)(b)(vii) of the Act, we advise that we cannot agree with that view for the reasons stated above.

We hope that our comments have been helpful.

for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch

RL/sp