4 June 1997 Internal T.I. 9702177 - EXEMPT PORTION

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:

how to calc. exempt portion of municipal officer's allowance when there is no deeming provision in Municipal Act of province (local Order has deeming provision)

Position:

calc. per para 7 of IT-292

Reasons:

963181

										June 4, 1997

	Edmonton Tax Services Office			HEADQUARTERS
	Senior Business Services Agent			Sandra Short
613) 957-8953
	Attention:  Carol Sayre
										970217

Subsection 81(3) - Calculation of Exempt Portion

This is in reply to your query of January 23, 1997, concerning subsection 81(3) of the Income Tax Act (the "Act"). You have asked how to calculate the exempt portion of a municipal officer's allowance given the following facts.

XXXXXXXXXX

Our Comments

We have been advised by the XXXXXXXXXX, that it is now an incorporated municipality (XXXXXXXXXX/Short, April 15, 1997). The council members are elected officers of the incorporated municipality and, accordingly, the conditions of paragraph 81(3)(a) of the Act are met. (Prior to incorporation as a municipality, the conditions of paragraph 81(3)(b) were met when the officers were elected by popular vote XXXXXXXXXX.)

It is our understanding that Alberta's Municipal Government Act does not contain a provision which deems a proportion of the total amount paid to an elected member of a municipal council to be an allowance for expenses. This was confirmed in an April 17, 1997, telephone conversation with an official of Alberta Municipal Affairs (XXXXXXXXXX/Short). XXXXXXXXXX this does not, in our view, mean that paragraph 6 of IT-292 applies. Paragraph 6 describes the Department's position when the provincial legislation governing municipalities contains a deeming provision. As a result, the comments in paragraph 7 of Interpretation Bulletin IT-292 apply in determining the amount which may be excluded from a councillor's income, under subsection 81(3) of the Act.

To calculate the exempt portion of any allowance paid for the discharge of duties, it is necessary to calculate the total amount received by a councillor, as discussed in paragraphs 3 through 5 of IT-292. In this regard:

(1)The hourly honorarium is payable only with actual attendance at meetings and seems to have the character of "salary, fees, indemnities and honoraria," as referred to in paragraph 3(a) of Interpretation Bulletin IT-292.

(2)It appears that the monthly "retainer" of $XXXXXXXXXX is a nonaccountable allowance for expenses incident to the discharge of a councillor's duties, as described in paragraph 3(b) of Interpretation Bulletin IT-292. In a conversation with the municipality (XXXXXXXXXX/Short), it was indicated that the $XXXXXXXXXX is intended to compensate councillors for expenses such as individual meetings with constituents, for travel to view problem areas such as bad roads and so on. There is no accounting for this allowance.

(3)The reimbursement of meal expenditures, incidental expenses and accommodation charges for the carrying out of municipal business (at the rates specified above), will not form part of the total amount received by a councillor. See paragraph 4 of IT-292 in this regard. However, to the extent that the municipality may reimburse a councillor for personal travel, such as for travel to and from the councillor's home to the regular meeting place for council meetings, the amount is required to be included when computing the trustee's income. As you may recall, travel between one's residence and work location is personal travel. An exception to the general rule occurs when the employee or officer is required or permitted to proceed directly from home to a point of call other than the ordinary place of work.

The following example may assist you in your determinations:

During a calendar year, a councillor attends twelve meetings, each one of less than 4 hours duration and 3 meetings each of which extend beyond 4 hours ((12 x $100) + (3 x $200) = $1,800). The retainer was paid each month and totals $6,000 (12 x $500). Business travel and accommodation expenses equal $1200 and personal travel for travel to and from council meetings equals $600.

The councillor's total income, as calculated under paragraph 3 of IT-292, equals $8,400 ($1,800 + $6,000 + $600). The business travel is not included in accordance with the comments in paragraph 4 of the IT. Per paragraph 7 of the IT, 1/3 of $8,400, or $2,800, is considered to be an expense allowance and 2/3 or $5,600 is salary or other remuneration. Thus, of the total income of $8,400 paid to the councillor (exclusive of business travel and accommodation reimbursements and allowances), $2,800 is exempted from income and $5,600 is required to be included in income.

R. Albert
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

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