1 March 1996 Internal T.I. 9603927 - SPECIAL WORKSITE ALLOWANCES

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

RULINGS DIRECTORATE
CORRESPONDENCE SUMMARY

Principal Issues:

Taxability of certain lump sum allowances paid to union members pursuant to proposed contract. The terms of the proposed contract are comparable to those contained in currently effective agreements with other employers. Subparagraphs 6(1)(b)(vii.1) and (x), subsection 6(6) of the Income Tax Act.

Position TAKEN:

Personal Vehicle Use Distance Allowance taxable. Subsection 6(6) not applicable to exempt payments.

Reasons FOR POSITION TAKEN:

Departmental Position, Previous correspondence

						March 1, 1996

	XXXXXXXXXX				HEADQUARTERS
	BEIA, Business Audit		D. Zion
	XXXXXXXXXX Tax Services		(613) 957-8953

						960392

Special Worksite Allowance

This is in reply to your correspondence of January 29 1996 and our subsequent conversations (Zion/XXXXXXXXXX) regarding the taxability of certain lump sum allowances to be paid to
XXXXXXXXXX

As discussed in our telephone conversation of February 2, 1996, we have only provided an opinion with respect to the taxability of the lump sum personal vehicle use distance allowance ("PVA"), an allowance provided to worker's whose temporary work site is within a 104 kilometre radius of the point of hire. The employees receiving the PVA under these circumstances do not, according to the contract provided to us, also receive board and lodging. As further agreed, due to the lack of details and documentation available to us with respect to the living out allowance, an allowance provided to those workers whose temporary worksite is beyond the 104 kilometre radius, we are only in a position to provide general comments regarding the taxability of such payments but which should be of assistance in your discussions with the client.

Private Vehicle Allowance

Generally, an allowance received by an employee in the course of an office or employment is subject to tax unless it falls within the exceptions listed in subparagraphs 6(1)(b)(i) to (ix), subsection 81(3.1) or subsection 6(6) of the Income Tax Act (the Act). Subsection 81(3.1) of the Act refers to amounts received by an individual in respect of part-time employment as an allowance for or reimbursement of travel expenses during a period throughout which the individual has other employment or is carrying on a business. We have assumed that subsection 81(3.1) is not relevant to your enquiry.

As we understand the situation, it is proposed that the employees

XXXXXXXXXX

You have advised us that the employees in question return home at the end of their daily shift. In order for this travel allowance to be exempt under paragraph 6(6)(b) of the Act it must have been paid in respect of travel costs to a special work site referred to in subparagraph 6(6)(a)(i) of the Act. The temporary work sites in question are not, in our view, a special work site as envisioned by this subparagraph because the employees can reasonably be expected to return daily to their principal place of residence (as evidenced by the fact that they do so) and the employee's duties would not require that employee to be at the work site for a period in excess of 36 hours. Accordingly, we are in agreement that the conditions set out in subsection 6(6) of the Act are not met and so that provision will not be applicable to exempt the allowance from taxation.

The workers, depending on their work instructions, report daily to the point of hire (permanent headquarters) or directly to the temporary worksite. In any event, at least one member of each work crew must report to the point of hire (permanent headquarters) to get the vehicle and special equipment required for the crew's daily work duties. It is the union representative's view that these PVA's are reasonable travel allowances and should not be considered taxable while it is your view that the allowances are taxable.

In general terms, the reasonableness of any particular allowance is a question of fact. The Department generally takes the view that any allowance that is intended or designed to cover the employee's out-of-pocket costs to use the vehicle in the course of performing the duties of employment would be a reasonable allowance. However, in the context of motor vehicle allowances described in subparagraph 6(1)(b)(vii.1) of the Act, there are additional criteria that must be met before such an allowance can be considered reasonable. Subparagraphs 6(1)(b)(x) and (xi) of the Act impose a further qualification by deeming not to be reasonable any allowance that is not based exclusively on a per kilometre basis for the employment-related use of the vehicle or any allowance that is provided in conjunction with a reimbursement in respect of the employment-related use of the vehicle (other than the reimbursement of supplementary business insurance and toll/ferry charges not already included in those allowances). Therefore, the allowances described in both 2 and 3 above are allowances that would be deemed not to be reasonable for income tax purposes by virtue of subparagraph 6(1)(b)(x) of the Act and would be required to be included in the worker's income.

It is possible that the worker may be able to satisfy the conditions of paragraphs 8(1)(h) and (h.1) and thus be eligible to claim a deduction for travelling and motor vehicle expenses under these provisions. Based on the limited information available to us, it would appear that these workers fall into the category of employees who are ordinarily required to carry on the duties of their employment "... in different places". The question remains as to whether they can satisfy all the other requirements of paragraphs 8(1)(h) and (h.1) of the Act. The recipient employee who otherwise qualifies under these provisions would be permitted to claim the applicable expenses incurred in the course of employment. IT-522 provides further comments in this regard. We would also point out that as a result of the interaction between paragraph 8(1)(h) and subsection 8(4) of the Act, an employee who is employed by a firm whose principal business is not the transportation of either passengers or goods cannot deduct any meal expense unless away from the home municipality for at least 12 hours.

Living Out Allowance

As previously discussed, paragraph 6(1)(b) of the Act requires all allowances received for personal or living expenses, or for any other purpose, to the extent that they are not described within the exceptions set out in subparagraphs (i) to (xi) thereof, to be brought into income unless the benefits or allowances are exempted by virtue of paragraph 6(6)(a) of the Act. The exemption in subparagraph 6(6)(a)(i) of the Act applies to allowances received or benefits enjoyed by employees at a special work site, whereas subparagraph 6(6)(a)(ii) of the Act relates to employees at a remote location.

Subparagraph (6)(1)(b)(vii) of the Act excludes reasonable allowances received by an employee for expenses for travelling away from the municipality or metropolitan area where the employer's establishment was located. As explained earlier, the reasonableness of any particular allowance is a question of fact. Where the allowance is found to be unreasonable and must be included in income, we would refer you to our previous comments regarding the possible employment expense deduction contained in paragraph 8(1)(h) as modified by subsection 8(4) of the Act.

In cases where all of the criteria of subsection 6(6) of the Act are met, there is no requirement that the value of free board and lodging or an allowance in lieu of, be included in the employee's income. Where a criterion of subsection 6(6) of the Act is not met, such as an employee not maintaining a principal place of residence elsewhere or reasonably being expected to return daily from the special work site to his principal place of residence, the value of the board and lodging benefit, or allowance in lieu thereof, paragraphs 6(1)(a) or (b) will apply to require the value or allowance to be included in income unless exempted by one of the exceptions contained therein. Individual circumstances will determine whether, by reason of distance, the employee cannot reasonably be expected to return daily to the place where a self-contained domestic establishment was maintained by that employee. The principal place of residence must remain available for the employee's occupancy during the period of employment and not be rented out to any other person. You believe that some individuals receive a living out allowance yet return home daily. Under these circumstances we would agree that 6(6) of the Act would not be applicable and the allowance received is taxable pursuant to paragraph 6(1)(b) of the Act. Interpretation Bulletin IT-91R3 which discusses special work sites in more detail may be of assistance to the client.

We trust that our comments have been of assistance.

J.A. Szeszycki
for Section Chief
Personal and General Section
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch