16 June 1987 Income Tax Severed Letter 5-2658 - [Special allowances as described in subparagraph 6(1)(b)(iii)]

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.

XXX

C. Tremblay (613) 957-2139

Attention: XXXX

June 16, 1987

Dear Sirs:

This is in reply to your letter of December 15, 1986, and subsequent telephone conversations regarding XXX personnel employed in Lahr, Germany as to whether the various living allowances are special allowances as described in subparagraph 6(1)(b)(iii) of the Income Tax Act (the Act) and consequently not taxable. We apologize for the unavoidable delay in responding.

Our understanding of the relevant facts is as follows:

XXXXXX Plan

Employees receive a living allowance, a rental allowance, a medical /hospital allowance, an education allowance and a utility allowance. In all cases, the allowances are to provide for the additional cost of living in a foreign post, except for the education allowance, which is to provide for education of the children in either French or English. The amount of the allowance is based on information reported by Statistics Canada and the total program is similar to that used by the government of Canada for its employees abroad.

Alternate Plan

The D.N.D. formulates a Salary Equalization Factor (S.E.F. allowance), which is applied to salary. The S.E.F. allowance is calculated from time to time and is also designed to compensate for additional cost of living in a foreign country. This allowance is similar to that accorded other civilian individuals serving in foreign countries with the Canadian Forces.

6. It has previously been determined that these XXX employees, seconded to the D.N.D., are officers or servants of Canada, in accordance with subparagraph 250(1)(c)(i) of the Act, and consequently are taxable in Canada.

Our Comments

Generally, an allowance paid to an employee for personal or living expenses is included in the recipient's income under paragraph 6(1)(b) of the Act unless it is excepted under any one of subparagraphs 6(1)(b)(i) to (ix).

A review of the documentation provided shows that the Canadian Forces Europe XXX because of the specialized expertise required. Generally, civilian employees serving abroad with the Canadian Forces, engaged in peace-keeping or observing roles come under the Treasury Board foreign service directives; it is thus our view that employees described under paragraphs 250(1)(b), (c), (d) or (d.l) of the Act and who receive a S.E.F. allowance (your alternate plan) are not taxable on the allowance by virtue of subparagraph 6(1)(b)(iii) if it is received in respect of a period of absence from Canada and where the employee has been resident in Canada prior to this employment.

A review of the XXX plan for foreign allowances indicates it is based on government plans calculated by Statistics Canada to determine cost of living differences between Canada and the foreign post. It appears to closely resemble Treasury board foreign service directives. The employees, described in paragraph 250(1)(c) of the Act, considered extended residents of Canada, who choose this option should not, however, be placed in a more favourable position than those choosing the S.E.F. allowance. It is our opinion that this allowance, provided it remains comparable to the alternate Salary Equalization Factor, is also a non- taxable allowance pursuant to subparagraph 6(1)(b)(iii) of the Act.

These opinions are our best interpretation of the law as it applies generally. They may, however, not always be appropriate in the circumstances of a particular case and, as stated in paragraph 24 of Information Circular 70-6R, they are not binding on this Department.

Yours truly,

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

cc Collections & Accounting Dir. Assessing & Enquiries Dir.