1 May 1997 Ministerial Letter 9707748 - PROFESSIONAL ALLOWANCE FOR UNIVER PROFESSOR

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:

whether an allowance or reimbursement to an employee for either employment related consumable supplies or for durable assets like a computer is included in income

Position:

allowances of both types are included in income but if the amount is a reimbursement of a consumable employment-related supply, it is excluded from income - if it is a reimbursement of a durable good or of a personal expense, it confers a economic benefit and is taxable to the employee under 6(1)(a)

Reasons:

6(1)(b) contains no exclusion for either type of allowance and 6(1)(a) will require the reimbursement of a employee's cost of a durable good to be included in income in that the employee has effectively acquired an asset at a lower cost than s/he would have if the employer had not assisted note that the Dept's response to Huffman was that both an allowance & a reimbursement of special clothing which had no personal value was is excluded from income - the quantum of such allowances, when paid as allowances, is usually such that it is reasonable to assume that the employee likely did spend the full amount of the allowance because it would be unreasonable to expect the employee to spend less - if it is likely that the employee may not spend the full amount of the allowance, then it should be included in income

MINISTER/DEPUTY MINISTER'S OFFICE 97-02057M
ADM'S OFFICE
RETURN TO 15TH FLOOR, ALBION TOWER

May 1, 1997

XXXXXXXXXX

Dear XXXXXXXXXX:

I am writing in respect of a question raised by one of your constituents concerning the taxation of allowances paid to university professors for expenses incurred in relation to their employment. I understand that Mrs. Annemarie Humenuk of the Department's Income Tax Rulings and Interpretations Directorate has spoken with XXXXXXXXXX of your constituency office concerning this matter.

Your constituent has been advised by the employer that a professional allowance paid to a professor is non-taxable as long that it is spent on consumable supplies and not on durable assets, such as a computer. Your constituent would like to know the rationale for this position.

I would like to explain that an employee is required to include in income the total of all allowances received in the course of employment, unless an allowance is specifically excluded under the provisions of the Income Tax Act. Since there is no statutory exclusion for a professional allowance, it is generally taxable in the year received.

If an employee is required to submit receipts or otherwise show the employer how the amount was spent, the amount is considered to be a reimbursement even if the employer calls it an allowance. A reimbursement, as opposed to an allowance, is only included in an employee's income when the reimbursement results in an economic advantage or benefit to the employee. When the reimbursement by the employer relates to supplies consumed directly in the course of employment, there is generally no economic advantage to the employee and no amount is included in the employee's income.

When the reimbursement by the employer relates to an asset owned by the employee or to a personal expense of the employee, the employee benefits from the assistance and is required to include the amount of the reimbursement in income. For example, if the employer reimburses an employee for the cost of a computer that the employee purchased and will continue to own, the employee's net cost of purchasing the computer is less than it would otherwise have been. Since the employee has received an economic benefit from the employer, the amount of the reimbursement must be included in the employee's income. This is so even if the employee is required to use the computer in the course of the duties of employment.

I thank you for bringing this matter to my attention and I trust that this information will assist you in replying to your constituent.

					Yours sincerely,

					Jane Stewart, P.C., M.P.

A. Humenuk
April 8, 1997
957-2134
970774

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