28 July 1998 External T.I. 9807825 - NORTHERN RESIDENT'S DEDUCTION

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:

Does an amount designated as being travel expenses qualify for the 110.7(1)(a) deduction?

Position:

NO

Reasons:

there must be a connection between the travel incurred and the amounts paid by the taxpayer's employer to defray these costs

XXXXXXXXXX 	     	                                                      980782
C. Tremblay

Attention:  XXXXXXXXXX 

July 28, 1998

Dear Sir,

Re: Northern Resident’s Deduction

We have been asked by our Northern B.C. and Yukon Tax Services Office to respond to your letter of March 9, 1998, concerning a clause in a collective agreement between your company and XXXXXXXXXX as it applies to the Northern Residents Travel Deduction.

You state that the collective agreement signed by both parties contains a clause that states: “XXXXXXXXXX”. You advise that the collective agreement was signed in 1996 and that the wages at issue were earned in 1997.

Our Comments

Although the situation described involves actual completed transactions involving specific taxpayers which is generally the responsibility of the local taxation services office, we have set out some general comments which may be of some assistance.

Section 110.7 of the Act provides, in computing an individual’s taxable income for a taxation year, a special deduction in respect of certain travel benefits and living costs where the individual resides, throughout a period of at least 6 consecutive months commencing or ending in the year, in a northern or isolated area that is a “prescribed northern zone” described under section 7303.1 of the Income Tax Regulations (the “Regulations”). The Yukon Territory is a prescribed northern zone.

The deduction in respect of employee travel benefits is provided in paragraph 110.7(1)(a) of the Act. Generally, this deduction offsets the income inclusion in respect of benefits provided by an employer to an employee or the employee’s family with respect to trips made for the purpose of obtaining necessary medical services not available locally or with respect to travelling expenses in connection with not more than two trips per year.

In our opinion, there must be a connection between the actual travelling expenses incurred by a taxpayer or a member of the taxpayer’s household and the amounts paid by the taxpayer’s employer to defray those costs (and not merely a designation of employee’s wages and travel benefits). Since, in the situation at hand, the entire amount paid is wages and there is no specific reference to an amount paid as travel assistance for travel actually taken by the employees, it is our view that the entire amount paid to the employees should be included in their income under subsection 5(1) or paragraph 6(1)(a) of the Act, and that no deduction would be permitted under 110.7(1)(a) of the Act.

We trust that our comments will be of assistance to you.

Yours sincerely,

J. F. Oulton, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

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