11 March 1999 External T.I. 9901605 - SPECIAL 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 allowances paid to stage managers are eligible for the special work site exemption under 6(6). If not, are they able to claim travel expenses in respect of their meal allowance in some situations.

Position: General answers given for the 9 examples submitted.

Reasons: Where subsection 6(6) does not apply, meal expenses paid by the employee may be claimed as travel expenses under paragraph 8(1)(h), subject to subsection 8(4) and the 50% limitation under subsection 67.1(1). If the meal allowance is unreasonable, the employee may include it in income and claim travel expenses. However, for purposes of subsection 8(4), the facts of each case have to be examined to determine where the employee ordinarily reports for work. Depending on the employment contract, they may ordinarily report to more than one employer establishment. The employment contracts may vary widely regarding travel requirements.

XXXXXXXXXX 			5-990160
				David Shugar
Attention: XXXXXXXXXX 

March 11, 1999

Dear XXXXXXXXXX :

Re: Employment at Special Work Site

This is in reply to your correspondence of January 21, 1999 in which you requested our opinion on whether allowances paid to stage managers who are employees, would qualify for the exclusion from income under subsection 6(6) of the Income Tax Act (the “Act”). You also asked whether they are eligible to claim travel expenses in certain situations.

You have advised us that much of a stage manager’s time is spent working away from home, and, in all but the largest urban centres, the typical individual spends at least part of the year on tour working from a fixed location elsewhere in the country. Occasionally, they may also work out of the country. Your questions and hypothetical situations are as follows:

1. Does the acceptance of a temporary position from an employer in a distant location, with the requirement that one come to that location to do the work, constitute a Special Work Site situation, or, does an employer in your home base have to send you somewhere distant for a Special Work Site designation to apply?

2. Scenario 1: A stage manager (the “employee”) receives a housing allowance to temporarily work in Vancouver in the following unrelated situations:

2.1. The employee’s residence is left vacant.

2.2. The employee has a roommate who shares expenses, and continues to occupy the residence while the employee is away.

2.3. Rather than leave his residence unoccupied while he is away, the employee allows another person to occupy it, rent-free, and the residence continues to be available for the employee’s use.

3. Scenario 2: An employee accepts a nine week contract in another city. The employee does not receive an allowance for board and lodging, but is provided with accommodation while in the other city. While away, the employee continues to maintain her residence.

4. Scenario 3: An employee, resident in Halifax, signs a contract with an employer located in Halifax. The contract states that rehearsals will take place in Halifax, followed by eight weeks of performances, six consecutive weeks of which will be on tour. Several unrelated situations were provided as follows:

4.1. The first two weeks of performances will take place in Halifax. While on tour she will receive a per diem of $86.75 for meals and accommodation for each day she will be sleeping away from Halifax. The employee continues to maintain her residence in Halifax while on tour. You asked how subsection 6(6) would apply to this situation.

4.2. The first two weeks of performances will take place in communities surrounding Halifax and the employee will return home each night with the rest of the company. Five days of each week will be spent at locations between 30 and 150 kilometres from her residence. On those days she will receive a meal allowance of $24.75 per day. You asked how subsection 6(6) would apply to this situation.

4.3. In the above situation, should subsection 6(6) not apply, can the employee use a T2200 to claim the excess of their actual meal expenses less the allowance as an employment expense?

4.4. Part of the tour takes place out of the country and the per diem is augmented.

4.5. The employee arranges to stay with friends or relatives while on tour in their town, and does not incur any expenses for board and lodging.

5. Is an employer responsible for CPP, EI, and taxes in a situation where a TD4 was prepared in good faith by the employer and employee, and Revenue Canada subsequently determined that subsection 6(6) of the Act was not applicable in the situation? What are the consequences to the employer if an employee signs a TD4, and rents out their residence while away, without informing the employer?

6. Are taxes, CPP, and EI premiums required to be deducted from amounts that are excluded from income under subsection 6(6)?

In a phone conversation on February 11 (XXXXXXXXXX/Shugar), you advised us to disregard your question regarding self-employed individuals.

Our comments

The situations that are described appear to involve a series of actual completed or ongoing transactions involving specific taxpayers, consequently, you had appropriately directed your questions to your local taxation services office, which has the responsibility of determining the tax consequences of completed transactions and their implications to specific taxpayers. Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request. The procedures for requesting an advance ruling are outlined in Information Circular 70-6R3 dated December 30, 1996. However, the taxation services office had forwarded your questions to us for a response and we are prepared to provide the following comments which are of a general nature.

Generally, the value of board and lodging provided by an employer is included in the employee’s income under paragraph 6(1)(a) of the Act. An allowance paid to an employee is included in the employee’s income under paragraph 6(1)(b) unless it is described in one of the exceptions in that paragraph. Subsection 6(6) of the Act allows certain allowances in respect of personal or living expenses, normally considered a taxable benefit under paragraph 6(1)(b) of the Act, received by individuals employed at special work sites and remote work locations, to be excluded from income. The purpose of subsection 6(6) is to recognize that where an individual takes on a temporary assignment at a work location sufficiently distant from where he ordinarily resides, it is not reasonable to expect the individual to dispose of his residence and move to the new location for a short period of time. It further recognizes that where an individual continues to incur the cost of maintaining his principal place of residence without any offsetting rental revenue for the period, a benefit is not being conferred on the employee if the employer provides or pays for the costs incurred in respect of the temporary residence at the special work site. Subparagraph 6(6)(a)(i) of the Act is intended to provide relief to those individuals who, for one reason or another, continue to maintain a residence while employed at a special work site. This would include homeowners who do not wish to sell or rent their home while away on a temporary assignment and who incur expenses in maintaining the home such as taxes, utilities, mortgage payments, etc. It would also include individuals responsible for rent payments while away on a temporary assignment given that, under the circumstances, giving up the rental property would not be reasonable or practical.

Subsection 6(6) deals with employment at Special Work Sites and Remote Work Locations. Since it is unlikely that Stage Managers will be required to work in remote locations, far from an established community, the provisions regarding remote work locations are not addressed in our reply.

Paragraph 6(1)(b) provides that “all amounts received by a taxpayer in the year as an allowance for personal or living expenses or as an allowance for any other purpose are to be included in income, except ...

(vii) reasonable allowances for travelling expenses (other than allowances for the use of a motor vehicle) received by an employee (other than an employee employed in connection with the selling of property or the negotiating of contracts for the employer) from the employer for travelling away from

(A) the municipality where the employer's establishment at which the employee ordinarily worked or to which the employee ordinarily reported was located, and

(B) the metropolitan area, if there is one, where that establishment was located,

in the performance of the duties of the employee’s office or employment, ...”

Subsection 6(6) of the Act states:

“Notwithstanding subsection (1), in computing the income of a taxpayer for a taxation year from an office or employment, there shall not be included any amount received or enjoyed by the taxpayer in respect of, in the course or by virtue of the office or employment that is the value of, or an allowance (not in excess of a reasonable amount) in respect of expenses the taxpayer has incurred for,

(a) the taxpayer's board and lodging for a period at

(i) a special work site, being a location at which the duties performed by the taxpayer were of a temporary nature, if the taxpayer maintained at another location a self-contained domestic establishment as the taxpayer's principal place of residence

(A) that was, throughout the period, available for the taxpayer's occupancy and not rented by the taxpayer to any other person, and

(B) to which, by reason of distance, the taxpayer could not reasonably be expected to have returned daily from the special work site, or

(ii) [Remote Work Locations],

if the period during which the taxpayer was required by the taxpayer's duties to be away from the taxpayer's principal place of residence, or to be at the special work site or location, was not less than 36 hours; or

(b) transportation between

(i) the principal place of residence and the special work site referred to in subparagraph (a)(i), or

(ii) [Remote Work Locations],

in respect of a period described in paragraph (a) during which the taxpayer received board and lodging, or a reasonable allowance in respect of board and lodging, from the taxpayer's employer.”

Our comments address your questions in the order in which they were presented above.

1. Regarding your first question, subsection 6(6) of the Act may apply in both situations described, provided the conditions of the subsection are otherwise met. An individual can accept employment with an employer that is located at a distant location, or, a permanent employee may be required to go to a distant work site on a temporary basis.

2. Scenario 1

In this scenario, your concerns are whether the employee is considered to have maintained a self-contained domestic establishment (a “SCDE”) while away, and whether the condition in clause 6(6)(a)(i)(A) regarding its availability to the employee has been met.

It is not necessary for the SCDE to be left vacant by the employee while he is away. The employee may allow another person to occupy their SCDE, as long as it is not rented, and it remains available for the employee’s occupancy while he is away. Therefore, the circumstances given in the first and third situations of this scenario do not preclude subsection 6(6) from applying.

The second situation in this scenario concerns the interpretation of the requirement under subparagraph 6(6)(a)(i) that the employee “maintained at another location, a self-contained domestic establishment.” In our view, in the context of subparagraph 6(6)(a)(i) of the Act, the term “maintain” should be interpreted as meaning expenses incurred in the upkeep of the residence. In a situation of shared expenses, whether the employee maintained a SCDE and otherwise meets the provisions of subparagraph 6(6)(a)(i) of the Act is a question of fact which would have to be determined on a case by case basis. For example, consideration may be given to whether the other person assumes all the costs of maintaining the SCDE while the employee is away.

3. Scenario 2

In this scenario, rather than pay the employee an allowance for board and lodging, the employer supplies the accommodation for the duration of her stay in the other city. As explained in paragraph 1 of Interpretation Bulletin IT-91R4, the value of employer provided board and lodging that would otherwise be a taxable benefit under the rules in subsection 6(1) of the Act, is eligible for the exclusion under subsection 6(6) of the Act, provided an employee otherwise qualifies for the exclusion. The fair market value of the accommodation provided by the employer must be shown on Form TD4.

4. Scenario 3

The first part of this scenario is concerned with whether the employee has met the requirement in clause 6(6)(a)(i)(B) that the SCDE be at a location at which, by reason of distance, the employee could not reasonably be expected to have returned daily from the special work site. The terms of the contract state that she will be paid a per diem for each day she sleeps away from Halifax.

As a general rule, an employee will not be expected to return to his or her principal place of residence if the work site is more than 80 kilometres (50 miles) from the employee’s residence by the most direct route normally travelled in the circumstances. Cases not meeting this general rule are not necessarily disqualified from the exclusion under subsection 6(6) of the Act. Paragraph 9 of Interpretation Bulletin IT-91R4 describes instances when the special work site status would not be denied because the employee’s principal place of residence is less than 80 kilometres from the special work site by the most direct route normally travelled. The following factors will be considered when the distance travelled is less than 80 kilometres:

• The number of hours of work which the employee is required to perform at the special work site each shift;
• the amount of time that would be required for travel and the time of day or night when travel would take place;
• the means of transportation available and the condition of the route that would be travelled (e.g. quality of roadway, seasonal weather conditions, etc.);
• the length of rest period if the employee returned home daily; and
• the general physical and mental health of the employee.

Therefore, for the six weeks on tour, if the employee otherwise meets the requirements of subsection 6(6) of the Act, the per diem would be eligible for the exemption under subsection 6(6), provided the distance from the residence to the work site is more than 80 kilometres, or the special circumstances described in paragraph 9 of IT-91R4 apply. If the employee sleeps away from Halifax (the location of her principal place of residence), but within 80 kilometres of her residence, and the special circumstances described in IT 94R4 do not apply, she would be entitled to the per diem per her contract, but would not be eligible for the exemption at subsection 6(6). She would not qualify for the subsection 6(6) exemption until she again satisfies the 36 hour rule in subsection 6(6). Consequently, the per diem must be included in income under paragraph 6(1)(b) unless the exemption in subparagraph 6(1)(b)(vii) applies. This subparagraph is explained in our comments on the next situations.

In the second situation in this scenario, the employee receives a daily meal allowance of $24.75 and returns home each day for the first two weeks of performances. Since the employee will return home each day, the exemption under subsection 6(6) is not available since by returning home each day, the employee does not meet the requirement of clause 6(6)(a)(i)(B) which states that it must be unreasonable for the employee to return home each day from the work site. In addition, the employee would not be away from her principal place of residence for more than 36 hours as required by the subsection.

In our view, the meal allowance must be included in income under paragraph 6(1)(b) of the Act, unless the exemption in subparagraph 6(1)(b)(vii) applies. One of the conditions of subparagraph 6(1)(b)(vii) is that the employee is required to work away from the municipality where the employer’s establishment at which the employee ordinarily worked or reported is located.

Assuming an employer has just one establishment in Halifax at which the employee ordinarily worked, it is a question of fact whether another location to which the employee will be travelling is outside the municipality or metropolitan area where the establishment is located. In the second situation described above, once the municipality or metropolitan area of Halifax is identified, meal allowances in respect of travel to communities inside the area would be taxable, while meal allowances in respect of travel to communities outside the area would not be taxable provided all other conditions of paragraph 6(1)(b) are met.

However, an employer may have more than one place of business. In our view, where an employee is required under the terms of his employment to work at his employer’s various locations from which he is able to return to his home each day, any allowance for travelling expenses received by him is not exempt under subparagraph 6(1)(b)(vii), because each location is the employee’s ordinary place of employment and the employer’s place of business. He is then travelling from his home to one of his employer’s places of business at which he ordinarily works. The availability of the exemption under subparagraph 6(1)(b)(vii) to stage managers’ meal allowances can only be determined after a review of the particular employment contract and other facts of the case.

In the third situation of this scenario, regarding the use of form T2200, subsection 8(10) of the Act provides that expenses will only be deductible by an employee under paragraph 8(1)(h) where the employee files Form T2200 with their return of income, signed by the employer to the effect that the employee met the requirements of the relevant provisions for the deductibility of such expenses.

An employee would not be eligible to claim expenses under paragraph 8(1)(h), if they are in receipt of an allowance for travelling expenses that was excluded from income by virtue of the provisions in paragraph 6(1)(b) of the Act.

Paragraph 8(1)(h) states:

“(h) where the taxpayer, in the year,

(i) was ordinarily required to carry on the duties of the office or employment away from the employer's place of business or in different places, and

(ii) was required under the contract of employment to pay the travel expenses incurred by the taxpayer in the performance of the duties of the office or employment, amounts expended by the taxpayer in the year (other than motor vehicle expenses) for travelling in the course of the office or employment, except where the taxpayer

(iii) received an allowance for travel expenses that was, because of subparagraph 6(1)(b)(v), (vi) or (vii), not included in computing the taxpayer's income for the year,

or

(iv) claims a deduction for the year under paragraph (e), (f), or (g);”

Subsection 8(4) states:

“An amount expended in respect of a meal consumed by a taxpayer who is an officer or employee shall not be included in computing the amount of a deduction under paragraph (1)(f) or (h) unless the meal was consumed during a period while the taxpayer was required by the taxpayer's duties to be away for a period of not less than twelve hours, from the municipality where the employer's establishment to which the taxpayer ordinarily reported for work was located and away from the metropolitan area, if there is one, where it was located.”

As a result of the interaction between paragraph 8(1)(h) and subsection 8(4) of the Act, an employee who is employed by a firm whose principal business is not the transportation of either passengers or goods cannot deduct any meal expense unless away from the home municipality for at least 12 hours.

The deduction of meals expenses under subsection 8(4) of the Act is contingent on the expense being incurred in a place away from “the municipality where the employer’s establishment to which he ordinarily reported for work was located and away from the metropolitan area, if there is one, where it was located”. There is sometimes difficulty in determining the location of the employer’s establishment for the purpose of evaluating the deductibility of meal expense under subsection 8(4) of the Act. For each taxpayer, its location must be determined from the facts of the particular case.

The limitation in subsection 8(4) has application to an employee who works for a period of time at a series of locations at each of which his employer maintains an establishment, since each establishment is looked upon in turn as the establishment to which he ordinarily reports at the particular time. Subsection 8(4) does not limit a deduction for meal expenses of an individual who ordinarily reports to a certain establishment of his employer and in the course of his employment travels to other establishments on a temporary basis. As stated above regarding subparagraph 6(1)(b)(vii), whether an employee ordinarily reports to one or more employer establishments can only be determined by a review of the particular employment contract and the facts of the case.

If it is determined that paragraph 8(1)(h) applies in a particular case, and the allowance is unreasonable and is included in income, the employee may deduct travel expenses under paragraph 8(1)(h) of the Act if the requirements of those provisions are met. Each employment contract would have to be reviewed to determine whether the employee may deduct travel expenses. A copy of Interpretation Bulletin IT-522R, “Vehicle, Travel and Sales Expenses of Employees” is enclosed.

Subsection 67.1(1) of the Act limits the amount that may be deducted for meals to 50% of the lesser of the amount actually paid, and an amount that would be reasonable in the circumstances. A copy of Interpretation Bulletin IT-518R, “Food, Beverage, and Entertainment Expenses” and Information Circular 73-21R7 “Away From Home Expense” are enclosed.

Regarding your fourth situation about work sites outside Canada, subsection 6(6) has no restrictions as to the particular characteristics that a special work site must have, nor is there any wording which would preclude the employee being sent to, or brought in from, another part of the world.

In your fifth situation you asked whether an employee can incur no expenses, and the allowance still be exempted under subsection 6(6) of the Act. In our view, an allowance must be related to the amount of actual expense an individual is likely to incur in respect of the expenses for which the allowance is being provided, such as an estimate of the cost of board and lodging in the area. If, in fact, all other conditions of subparagraph 6(6)(a)(i) are met, the allowance which is based on an estimate of the costs of such board and lodging in the surrounding area would be considered reasonable and therefore non-taxable regardless of the amount actually spent by the employee.

5. In this question you are concerned about Revenue Canada’s ability to hold the employer responsible for CPP, EI, and taxes if it were found that subsection 6(6) did not apply to a particular situation. The instructions on Form TD4 requires that the employer contact their tax services office if they receive a form with doubtful statements. As indicated on the form, it is an offense for any person to knowingly complete or accept a Form TD4 with false or deceptive statements. This includes the situation where an employee rents out their SCDE, yet still signs the Employee Certification on Form TD4.

The Act contains several penalty provisions which may be applied to the employee, the employer, or both, depending on the facts of each situation.

Subsection 227(8) of the Act states “... every person who in a calendar year has failed to deduct or withhold any amount as required by subsection 153(1) or section 215 is liable to a penalty of

(a) 10% of the amount that should have been deducted or withheld; or

(b) where at the time of the failure a penalty under this subsection was payable by the person in respect of an amount that should have been deducted or withheld during the year and the failure was made knowingly or under circumstances amounting to gross negligence, 20% of that amount.

6. In reply to your final question, no withholding of tax, CPP, or EI premiums is required to be deducted from allowances to which subsection 6(6) applies.

Although our comments are not binding on the Department, we trust they will be of assistance to you.

Yours truly,

Roberta Albert, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

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