17 February 1994 External T.I. 9325335 F - Special Work Sites

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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Attention:  XXXXXXXXXX

Dear Sirs:

RE:  Special Work Sites

This is in reply to your letter of September 2, 1993 in which you asked us for our comments on whether certain allowances or reimbursements which are paid to an employee will be subject to tax. We apologize for the delay in replying.

In your letter you have outlined circumstances that appear to relate to an actual fact situation and involves proposed transactions.

Confirmation of the tax consequences of such transactions will only be provided in response to a request for an advance income tax ruling.

The procedures for requesting an advance income tax ruling are set out in Information Circular 70-6R2 and the related Special Release dated September 30, 1992. We are, however, providing you with the following general comments.

Our Comments:

You are concerned with the type of situation where an individual is employed in Europe by a corporation which indirectly controls a corporation in Canada (the Canadian Corporation). The individual will be employed in Canada for a period of time by the Canadian Corporation and the individual's family will accompany him or her to Canada. At the end of the employment term, the individual will move back to the European country and recommence employment with the European employer.

The individual currently owns a residence in the European country and will continue to own the residence in anticipation of his or her move back to the European country. The residence will not be rented during the individual's absence.

With respect to the above type of situation, one of the concerns is whether the individual's duties are of a "temporary nature" in the following circumstances for the purposes of the rules set out in subsection 6(6) of the Income Tax Act (the Act) in relation to a special work site:

(a)     the individual will be employed by the Canadian Corporation for a period of time not exceeding two years and the individual and his or her family will occupy (i) rental accommodation in respect of which the rental costs will be reimbursed to the individual or (ii) a house, which will be acquired by the Canadian Corporation and will be provided to the individual rent free; and

(b)     the circumstances are the same as in (a) above except that the individual will be employed in Canada for a period of more than two years but not exceeding three years.

An additional concern with the above two sets of circumstances is whether the provision of rent free accommodation or a reimbursement or an allowance paid in respect of rent, as the case may be, can re regarded as being non-taxable in relation to paragraph 6(1)(a) of the Act.

In connection with the above concerns, we are making the following comments:

(a)     With respect to the periods of employment set out in (a) and (b) above, it is our view that the word "temporary" is relative in nature and must be interpreted within the context of subsection 6(6) of the Act. In this regard, the Department's general position as to the interpretation of the word "temporary" is reflected in paragraph 9 of Interpretation Bulletin IT-91R3 "Employment at Special and Remote sites" which describes the general rule that employment for a period beyond 2 years would not normally be considered temporary. Consistent with these comments, it is our general view that a period of employment beyond that time frame takes on the characteristics of a long term assignment with the result that the provisions of subsection 6(6) of the Act relating to a special work site would be regarded as being applicable.

(b)     In the situation where the period of employment is specified as being for two years or less, it seems to us that the purchase of a home for the employee could be viewed as an action that is not consistent with the employment term. While we would be inclined to carefully review the overall circumstances of an actual situation for purposes of determining whether a temporary work assignment is in fact involved, it is not possible to provide further meaningful comments. We are also adding that the rules in subsection 6(6) of the Act concerning a special work site, require the employee to have a residence at another location that can be regarded as his or her "principal place residence". Where the employee resides in a home purchased by his or her employer, this fact is an indication that the home is the employee's principal of residence.

(c)     With respect to circumstances such as those set out above, it is the Department's position, subject to the exception in subsection 6(6) of the Act, that the value of free lodging, or an allowance or reimbursement paid to an employee in respect of lodging is required to be included in the employee's income.

Consistent with this comment, the Department is not prepared to accept the decision in the Splane case (90 DTC 6442) in any situation except where the facts are substantially the same (i.e., where the payment is made in respect of a mortgage interest differential). It is also our view that the Huffman case (90 DTC 6405) involved a rather unique set of circumstances which is not applicable to the issues under consideration.

As a final comment, we are mentioning that with respect to an actual situation, the tax consequences of the issues you have raised can only be determined following a review of all the relevant facts and documentation.

These comments represent our opinion of the law as it applies generally and as indicated in paragraph 21 of Information Circular 70-6R2, are not binding on the Department. Nevertheless, we hope that our comments are of assistance to you.

Yours truly,

P.D. Fuoco for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch