16 August 1988 Income Tax Severed Letter 5-6265 - [Employment at a Special Work Site]

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.

J.A. Szeszycki (613) 957-2130

Aug 16 1988

Dear Sirs:

Re: Employment at a Special Work Site

This is in response to your letter of July 4, 1988 and your subsequent telephone conversation XXXX Szeszycki of July 12 requesting clarification of certain aspects of employment at a special work site. Specifically, you have four main concerns, as summarized below;

1) Where an individual's employment at a special work site extends beyond the two years, is the excluding provision of subsection 6(6) of the Income Tax Act automatically no longer applicable?

2) Is the value of benefits in respect of an employer provided automobile for use at the special work site excluded from income?

3) How does the Department interpret the term "reasonable allowance"?

4) Is salary earned for the actual period during which the employee is travelling to and from the special work site tax exempt?

The Income Tax Act (Sections 5 and 6) provides that for an employed individual the aggregate of his salary, wages and other remuneration, including benefits and allowances, is to be included in his income for the year for tax purposes. Section 6, however, further provides that certain benefits and allowances, normally taxable, may be excluded from income if the criteria governing such exclusions are met. One such excluding provision is subsection 6(6) which provides that where an individual is employed at a special work site performing duties of a temporary nature the value of free board and lodging, and transportation to and from the job is not required to be included in income. This tax treatment is not extended to amounts paid in respect of salary (Issue #4).

You have been given to understand that the word "temporary", as used in subsection 6(6), includes a period of employment at the special work site not exceeding two years and that once the two years has been exceeded the exemption offered by that provision is no longer available. The Department's position as to the interpretation of the word "temporary" in this context is reflected in paragraph 9 of interpretation bulletin IT-91R3 which describes the general rule that employment for a period beyond two years would not normally be considered temporary. Certainly, where it is known at the commencement of the employees duties that the period of employment at the special work site will exceed two years our position at the outset would be that subsection 6(6) does not have application. The two years is considered to be a reasonable guideline for employment that purports to be a temporary assignment. A period of employment beyond that takes on the characteristics of a long term or permanent assignment.

Where in a particular case the actual period of employment has or will extend beyond the two year mark the key to determining whether subsection 6(6) applies to the board, lodging and transportation allowances provided by the employer is to consider the terms of employment at the special work site at its commencement. Where the terms of employment indicate that the period of employment at the special work site is anticipated to be less than two years subsection 6(6) clearly applies. If subsequently circumstances change, which are not reasonably anticipated, necessitating an extension of that period beyond two years from commencement, the application of subsection 6(6) is not necessarily terminated. At the point in time when the need for the extension is known it must be determined whether the extension period can be considered "temporary" or otherwise and therefore, whether the allowances for board and lodging, and transportation provided by the employer during that period could be excluded from the employees income by virtue of subsection 6(6). Where doubt exists as to the original terms of employment the onus would be properly placed on the taxpayer to show that such an extension was not anticipated.

You have indicated in your letter that the extension of three to six months was necessitated by unforseen delays of a technical nature. Under those circumstances, it is our view that the employee would be entitled to continue benefitting from the provisions of subsection 6(6) of the Income Tax Act.

With regard to your second concern about the value of automobile benefits, please be advised that if the employee has met the criteria set out in subsection 6(6), having regard to our previous comments, he will continue to be entitled to exclude from his income the value of, or an allowance (not exceeding a reasonable amount) in respect of expenses incurred for transportation between his principal place of residence and the special work site. Recent proposed amendments to the automobile standby charge provision, presently before Parliament (Bill C-139) removes the reduction in the standby charge that has been available to employees with limited personal usage except in those cases where all or substantially all (i.e. at least 90%) of the distance travelled is in the course of employment. From your description of the employee's use of the automobile it is not clear whether he would meet this 90% test keeping in mind that travel such as between a temporary residence and his work place is considered personal in nature.

With respect to your request for clarification as to what is considered a "reasonable allowance" under the Act, the Department takes the view that the reasonableness of an allowance is a question of fact and must be related to the amount of actual expenses incurred by the employee rather than being based, for example, on levels of salary.

It is hoped that the foregoing will clarify the Department's position with respect to the application of subsection 6(6) of the Income Tax Act under the circumstances you have described.

Your truly

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