10 February 1988 Income Tax Severed Letter 7-2406 -  

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.

FEB 10 1988 FEV

Specialty Rulings Directorate Small Business and General Division N.R. Mitchell 957-2134 RE: XXXX

This in reply to your memorandum of December 15, 1987, in which our comments were requested with respect to a draft response which is proposed to be sent to the XXXX named above. The letter in question deals with the treatment for tax purposes of various benefits, allowances and reimbursements to be given to participants in certain XXXX We have now reviewed the information submitted and the proposal response. Our only difficulty concerns item A.1. (a) and B.1. (a) of your proposed response.

XXXXXXXX It is your view that these reimbursements would give rise to a taxable benefit in instances where the trips are taken before and after the term of employment, respectively. On the other hand, if the trips are taken at the beginning and end of the employment term, you believe that the reimbursement of reasonable expenses, such as economy air fare, connecting bus or train fares and transportation to the airport would be exempted under subparagraph 6(1)(b)(vii) of the Act.

With respect to the latter situation, we do not disagree with the result stated in your letter, but we would not consider subparagraph 6(1)(b)(vii) to be applicable to this context. As we see it, the requirements of that subparagraph are not met in that the amounts in question are reimbursments rather than allowances; they are not paid for travelling in the performance of the duties of the office or employment, but rather for travelling in order to take up one's duties and, finally, the amounts paid are not computed by reference to time.

In our view, the exclusion of these reimbursements from income can be supported based on the Department's published administrative practice which we understand to be derived from the premise that so-called "initial and terminal transportation" does not, in many cases, constitute a "benefit" to the individual. Paragraph 34 of IT-470

states that where an employer reimburses an employee for the costs of moving himself because he has accepted employment at a place other than where his former home was located, this reimbursement is not considered as conferring a benefit on the employee. The treatment of amounts paid in respect of the return trips is less clear. Paragraph 35 of IT-470 excludes taxation of employer-paid expenses of moving an employee out in termination of his employement, but only where the employee is moving from a "remote location". It is unlikely that very many of the locations at which the XXXX will be posted could be considered remote. However, paragraph 5 of IT-91R3 , which deals with the special work site exemption under subsection 6(6) of the Act, provides as follows:

5. No amount is included in an employee's income for transportation, or a reimbursement of transportation expenses, provided by an employer in respect of transportation to and from a special work site or a remote work location at the commencement and the completion of employment (commonly referred to as initial and terminal transportation) regardless of whether the employee qualifies for the exemption under subsection 6(6).

In our view, XXXXXXXX While these individuals would not qualify for any of the exemptions under subsection 6(6) of the Act, they would appear to fit the terms of the above-quoted paragraph. As we see it, a "special work site" is simply a location at which the duties performed by the employee were of a temporary nature.

Your draft response also suggests that a great deal turns on exactly when the trips were taken in relation to the commencement and end of the employment term. We would agree that reimbursements of the costs of additional or preliminary travel made to look for or to obtain employment or accomodation could be taxable. However, where an employee travels from his usual residence to the area of his new employment some days or even weeks before the rime he is expected to commence his duties, we would not consider the reimbursement of such travel to be rendered taxable for this reason alone. The same principle should be applied to the timing of the return trips. Accordingly, it is our opinion that in the circumstances under consideration, the initial and terminal transportation would generally not give rise to a taxable benefit and that in this regard the current emphasis in your proposed response may be more negative than is warranted. We would agree that, as is stated in item B.1. (a) of the response, any additional travel to and from an employee's home would be taxable as the conferral of a personal benefit.

Subject to the comments above, we are in agreement with the balance of the proposed response.

ORIGINAL SIGNED BY

ROBERT H. JOYCE for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch