5 April 1989 Income Tax Severed Letter 5-7594 - [Interpretation of Sections 8(1)(h) and 6(6)]

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.

Taxation Head Office

XXXX

J.D. Jones (613) 957-2104

APR 5 1989

Dear Sirs:

Re: Interpretation of Sections 8(1)(h) and 6(6) of the Income Tax Act (the "Act")

This is in reply to your letter of February 17, 1989 wherein you requested our opinion on the interpretation of the above-noted sections of the Act in the following hypothetical situations.

Situation 1

A Canadian resident individual takes up a teaching position in the United States with a U.S. University. The individual's family continues to reside in Canada in the family home in Canada and the individual commutes on a semi-regular basis (each week or second week) between his/her place of employment in the U.S. and his/her home in Canada. You have asked us to assume the individual remains a Canadian resident by virtue of his/her residential and personal ties and continues to be subject to tax on his/her worldwide income in Canada. The individual pays his/her own travelling expenses incurred to travel from Canada to the United States and vice versa and receives no allowance for such expenses.

Specifically, you have requested our views as to whether or not these travelling expenses would be deductible by virtue of paragraph 8(1)(h) of the Act in the event the individual is considered to be an employee or section 9 of the Act in the event the individual is considered to be an independent contractor. Additionally, you have requested our general comments on whether university professors would, in these circumstances, be treated as independent contractors or employees assuming appropriate agreements were entered into.

We would comment at the outset that whether university professors, in the above circumstances, would be treated as independent contractors or employees is a question of fact which can only be determined on a case-by-case basis in light of all of the surrounding facts and documentation and as such we are not in a position to give an opinion with respect to this issue. Concerning your query on whether or not the travelling expenses incurred would be deductible pursuant to paragraph 8(1)(h) of the Act if the individual is considered to be an employee or section 9 of the Act if the individual is considered to be an independent contractor, we offer the following comments.

In our view, the travelling expenses incurred would not be deductible pursuant to paragraph 8(1)(h) of the Act in the case of an employee as the individual would not ordinarily be required to carry on the duties of his employment away from his employer's place of business. In the situation where the individual is considered to be an independent contractor, the travelling expenses incurred are not deductible unless he can establish that his home is his place of business. This position is discussed in greater detail in paragraph 13 of IT-180 .

Situation 2

Same as situation 1 except the taxpayer is considered to be an independent consultant who carries on a significant portion of his business in the United States but also continues to carry on some business when he returns for visits to Canada.

You have asked if our opinion as to whether travelling expenses related to trips between Canada and the U.S. as a deductible expense would change from the scenario described in situation 1.

In our view, the position expressed in situation 1 should also apply in situation 2 unless the taxpayer can establish that his home is his place of business in which case it would be a question of fact based upon all the facts and circumstances of each individual case. If you have a specific fact situation in mind, you may wish to contact the local district taxation office with all the relevant details for their views on the matter.

With respect to the interpretation of subsection 6(6) of the Act as it applies to situation 1 described above, you have posed the following questions.

(1) Where the employee is on a year-to-year contract renewable at the mutual agreement of the employee and the employer and it is not forseeable with any degree of certainty whether or not the employment term will exceed a two year period, would the Department disallow the application of subsection 6(6) of the Act in respect of allowances paid for board, lodging and travel in a year if the term of the contract were to exceed two years?

(2) Would it be the Department's position that the application of subsection 6(6) of the Act would only be allowed for the first two year period (where the period of employment exceeds two years) or would subsection 6(6) of the Act be applicable for the length of the contract (in excess of two years) provided it could be established that the duties of employment were of a temporary nature.

The Department's position as to the interpretation of the word "temporary" in the above context is reflected in paragraph 9 of 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 employee's 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) of the Act does not have application. 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) of the Act 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) of the Act 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) of the Act 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 employee's income by virtue of subsection 6(6) of the Act. 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.

In the situation described above, it would appear that subsection 6(6) of the Act does not have application as it does not appear that the period of employment at the special work site at the commencement of employment was anticipated to be of less than two years duration.

We trust our comments will be of assistance.

Yours truly,

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