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.
Principal Issues:
1. Whether amounts are allowances.
2. Whether amounts are excepted by subparagraph 6(1)(b)(v), (vi), (vii) or (vii.1)
3. Status of amount if not an allowance.
4. Deductibility of amounts by employer.
Position:
1. Amounts are allowances.
2. Some are not excepted and some may be.
3. If not excepted allowances are taxable.
4. Employer may deduct whether taxable or non-taxable to employee.
Reasons:
1. See par. 40 of IT-522R for definition.
2. Analysis required for all amounts. It comes down to a question of fact on reasonableness is some cases.
3. See par. 40 of IT-522R for definition.
4. Expenditure is made to earn income and likely reasonable since part of a collective agreement.
Mr. H.L. Jones, Director
General Operations and Border
Issues Division
GST Rulings and Interpretations
Directorate 963960
Vanier Tower C, 9th floor Jacques E. Grisé
25 McArthur Road (613)957-2059
Vanier, Ontario
K1K 0L5
February 13, 1997
Dear Mr. Jones:
Re: Travel Allowances
This is in reply to your letter of November 26, 1996 requesting our technical interpretation on certain payments being made by XXXXXXXXXX (the employer) to their employees under XXXXXXXXXX (the agreement).
The amounts in question may be summarized as follows:
XXXXXXXXXX
Item 1 of your letter
In our view, the amounts described in a) to d) above fall within the definition of "allowance" for the purposes of paragraph 6(1)(b) of the Income Tax Act (the Act). The word "allowance" for such purpose means any periodic or other payment that an employee receives from an employer, in addition to salary or wages, without having to account for its use. It may be computed by reference to distance or time or on some other basis. The above definition is set out in paragraph 40 of Interpretation Bulletin IT-522R.
Item 2 of your letter
Clearly the allowances do not fall within subparagraphs 6(1)(b)(v) and (vi) of the Act since the employees are neither "employed in connection with the selling of property or the negotiating of contracts for the employee's employer," nor are they "a minister or clergyman." The allowances are not reasonable allowances for the use of a motor vehicle as described in subparagraph 6(1)(b)(vii.1) of the Act since such an allowance is deemed not to be a reasonable allowance where the measurement of the use of the vehicle for the purpose of the allowance is not based solely on the number of kilometres for which the vehicle is used in connection with or in the course of the office or employment. In this respect, please refer to subparagraph 6(1)(b)(x) of the Act.
Of the four exceptions provided in subparagraph 6(1)(b)(v), (vi), (vii) or (vii.1) of the Act with which you are concerned, only subparagraph 6(1)(b)(vii) of the Act may apply to some of the allowances. One of the requirements of subparagraph 6(1)(b)(vii) of the Act is that the allowance must be received for travelling away from the metropolitan area where the employer's establishment at which the employee ordinarily worked. We assume the establishment to be in the Toronto metropolitan area. If such is the case, the allowances described in a) above and some of the allowances described in b) do not meet the criteria in subparagraph 6(1)(b)(vii) of the Act since they are for expenses within the metropolitan area.
XXXXXXXXXX the agreement states that the amounts in c) and d) above are to provide reasonable compensation for food, shelter and incidental expenses. Such expenses would usually qualify for "travel expenses" for the purpose of subparagraph 6(1)(b)(vii) of the Act. On the other hand, it is not clear that the amounts in b) above are allowances for travel expenses for purposes of subparagraph 6(1)(b)(vii) since XXXXXXXXXX the agreement states that they are paid "XXXXXXXXXX". More information would be required to determine if the allowance in b) above is for travel expenses other than for the use of a motor vehicle.
It is a question of fact as to whether allowances for travel expenses that would otherwise meet the requirements of subparagraph 6(1)(b)(vii) of the Act, are reasonable. The actual travel expense of an employee would have to be compared to the allowance received by that employee to ascertain if the allowance is reasonable. A sample of selected employees for a certain period of time would usually be sufficient to determine whether the allowances are reasonable. The employer may already be making such an analysis for the allowances in c) and d) above in view of XXXXXXXXXX the agreement which states, in part, " XXXXXXXXXX ".
Item 3 of your letter
An allowance that does not fall within the description of subparagraph 6(1)(b)(vii) of the Act or any of the other exceptions in the paragraph is included under paragraph 6(1)(b) of the Act in computing the employee's income. In this respect, please refer to paragraph 41 of IT-522R.
Item 4 of your letter
The amounts paid by the employer pursuant to XXXXXXXXXX the agreement would likely be deductible by the employer whether the amounts are non-taxable or a taxable amount to the employee. The amounts would be used in arriving at the employer's profit or loss from the employer's business for purposes of section 9 of the Income Tax Act. There seems to be no restrictions in section 18 of the Act with respect to such allowances. The restriction in paragraph 18(1)(r) of the Act only applies to "an allowance for the use by an individual of an automobile". Such a restriction would only apply to the allowances paid by the employer pursuant to XXXXXXXXXX the agreement.
Should you or your staff wish to discuss any of the above, please call Jacques Grisé at 957-2059.
Yours truly,
Bryan W. Dath
Director
Business and Publications Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch
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