6 February 1998 External T.I. 9720005 - EMPLOYMENT AT SPECIAL OR REMOTE WORK SITE

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 accomodation, living and car allowances paid to employees employed at a special work site are tax-exempt.

Position:

Reasonable allowance for accomodation and living are exempt provided conditions of 6(6) are met, the car allowance is taxable.

Reasons:

Facts appear to indicate that conditions of a special work site are met, permitting the accomodation and living allowances to be tax-exempt, the car allowance is paid for commuting between the temporary residence and the work site and is therefore not tax-exempt.

5-972000

XXXXXXXXXX Karen Power, C.A.

Attention: XXXXXXXXXX

February 6, 1998

Dear Sirs:

Re: Employment at special work site or remote location

We are responding to your letter of July 24, 1997, concerning the taxation of various allowances payable to employees who are temporarily working outside of Canada. We apologize for the delay in replying. Please also note that as indicated in your letter of January 8, 1998, we will only be addressing the issues concerning subsection 6(6) of the Income Tax Act (the "Act").

You have advised us that the individuals are Canadian residents employed by an XXXXXXXXXX (the "Firm"), a taxable Canadian partnership. The Firm has entered into agreements with some of its employees, whereby the employees will be transferred to XXXXXXXXXX for a period of fourteen to twenty-one months. The employees will acquire accommodations in XXXXXXXXXX during their assignment. XXXXXXXXXX The employees will continue to maintain their principal place of residence in Canada while on assignment.

The employees will receive three specific monthly allowances: an accommodation allowance, a living allowance and a car allowance. You have asked us to comment on whether or not these allowances can be excluded from the employees income.

Our Comments

The particular circumstances in your letter on which you have asked for our views appears to be a factual situation involving a specific taxpayer. As explained in Information Circular 70-6R3, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate district taxation office for their views. However, we are prepared to offer the following general comments which may be of some assistance to you.

In our view, the intent of subsection 6(6) of the Act is to exclude from income an amount received as an allowance in respect of (or the value of) personal or living expenses such as board, lodging and transportation, which would otherwise be included in income as a benefit, where the employee is required by virtue of his employment to incur costs in respect of both a permanent and a temporary residence under circumstances described in paragraphs (a) and (b) of that subsection.

In order to qualify for the exclusion of a board and lodging or transportation benefit the individual must have received the benefit in respect of those expenses incurred at a special work site, a location at which the duties performed were of a temporary nature, if he maintained at another location a self-contained domestic establishment as his principal place of residence. That residence must be available to that individual throughout the period, not rented to any other person, and a sufficient distance away that the employee could not be expected to return home on a daily basis.

While it is a question of fact as to whether a particular work site would qualify as a special work site for any particular employee, in our view, based on your description of the facts, the site outside of XXXXXXXXXX, would qualify as a special work site. Generally the employees would appear to meet the conditions outlined in subparagraph 6(6)(a)(i). Whether or not an individual maintains a self-contained domestic establishment and otherwise meets the provisions of subparagraph 6(6)(a)(i) of the Act is a question of fact and would have to be determined on an individual case basis. Please refer to paragraph 7 of Interpretation Bulletin IT-91R4 "Employment at Special or Remote Work Sites" dated June 17, 1996 which further clarifies the meaning of an employee's principal place of residence for the purposes of subparagraph 6(6)(a)(i) of the Act. In addition, the onus rests with the employer to determine the amount of an allowance which would be reasonable under the circumstances for board and lodging.

Subsection 6(6)(b)(i) of the Act provides that where a work location qualifies as a special work site, transportation assistance between the work location and the employee's principal place of residence is excluded as a taxable benefit provided all of the criteria set out in that subsection are met. However, in your situation, the car allowance is to cover travel between the employees' temporary residence in XXXXXXXXXX and a field office located outside of the city and, in our view, transportation assistance is not exempt to the extent it applies to transportation between the employees' temporary residence and the special work site

We must emphasize that each situation must be viewed in the context of its own unique circumstances. If an employee's temporary principal place of residence is in a foreign city and he or she must report to work at a field office of the employer which itself is in a remote location and independently meets the criteria of subparagraph 6(6)(b) then the transportation assistance will not be considered taxable. A distinction is made between transportation assistance to and from a special or remote work site and commuting assistance. When an employee is commuting daily, any transportation assistance would be a taxable benefit because the employee would not have been away from his temporary residence for not less than 36 hours. In addition, the transportation assistance must be in respect of a period during which the employee also received board and lodging assistance for employment at the remote work location.

To conclude, based on the above comments, in our view, the accommodation and living allowances assuming that they are reasonable would be exempt from tax by virtue of subparagraph 6(6)(1)(a). However, the car allowance would be considered a taxable benefit.

Please note that form TD4 "Declaration of Exemption - Employment at Special Work Site" should be filed with the employer so that the relevant allowances are not subject to withholding and reporting requirements.

We trust our comments will be of assistance to you.

Yours truly,

Roberta Albert, C.A.

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