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 will be exempt under subsection 81(3).
Position: Yes, to the extent permitted in IT-292.
Reasons: Paragraphs 6 & 7 of IT-292 provide some administrative relief.
XXXXXXXXXX 990884-5
David Shugar
Attention: XXXXXXXXXX
May 19, 1999
Dear Sir:
Re: Municipal Officer’s Expense Allowance
This is in response to your letter of March 22, 1999, addressed to Mr. Adrian Venne, of GST/HST Rulings and Interpretations Directorate, which was forwarded to us for reply on March 29, 1999. Enclosed with your letter was correspondence you had received from XXXXXXXXXX, regarding municipal officers’ expense allowance.
The letters enclosed with your correspondence refer to a recent audit of the XXXXXXXXXX Information relating to a specific taxpayer cannot be released by the Department to any other person unless that taxpayer provides written consent in accordance with subsection 241(5) of the Income Tax Act (the “Act”). As XXXXXXXXXX has brought this issue to your attention, you may wish to contact XXXXXXXXXX directly, regarding the results of their particular audit.
Generally, questions regarding actual completed or ongoing transactions of specific taxpayers should be directed to the 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. Nevertheless, we are prepared to offer you the following general comments concerning the application of subsection 81(3) of the Act, and would like to respond to the points raised in your letter that do not relate to the audit of XXXXXXXXXX.
Subsection 81(3) of the Act states:
Where a person who is
(a) an elected officer of an incorporated municipality,
(b) an officer of a municipal utilities board, commission or corporation or any other similar body, the incumbent of whose office as such an officer is elected by popular vote, or
(c) a member of a public or separate school board or similar body governing a school district,
has been paid by the municipal corporation or the body of which the person was such an officer or member (in this subsection referred to as the person's “employer”) an amount as an allowance in a taxation year for expenses incident to the discharge of the person's duties as such an officer or member, the allowance shall not be included in computing the person’s income for the year unless it exceeds ½ of the amount that was paid to the person in the year by the person’s employer as salary or other remuneration as such an officer or member, in which event there shall be included in computing the person’s income for the year, only the amount by which the allowance exceeds ½ of the amount so paid to the person by way of salary or remuneration.”
Interpretation Bulletin IT- 292, “Taxation of Elected Officers of Incorporated Municipalities, School Boards, Municipal Commissions and Similar Bodies”, outlines the Department’s policies in respect of the interpretation of subsection 81(3) of the Act. Paragraph 6 of IT-292 states that when a Municipal Act contains a deeming provision, the proportion so deemed to be an expense allowance (up to one-third of the total paid) is accepted as an expense allowance not withstanding that local by-laws may specifically allocate portions of the total to salary, indemnity, allowance or other remuneration.
Paragraph 7 of IT-292 states that where there is no deeming provision in the Municipal Act of a province, the Department will consider one third of the total amounts received to be expense allowances and two-thirds to be salary and other remuneration. However, if the expense allowance actually paid is less than one-third of the total received this actual amount will be used and only the actual expense allowance would be excluded from income pursuant to subsection 81(3) of the Act.
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. As a result, in Alberta, the comments in paragraph 7 of IT-292 apply in determining the amount which may be excluded from an elected official’s income, under subsection 81(3) of the Act.
In the letter from XXXXXXXXXX refers to a recent audit of XXXXXXXXXX. In his letter, XXXXXXXXXX states that audits are being carried out without regard to the decision in the case of The Corporation of the City of Brantford v. Canada, [1988] T.C.J. No. 1073 Court File No 97-2049(GST)I (the “Brantford case”). XXXXXXXXXX suggests that as a result of the decision reached in that case, any assessments should be vacated, any assessment that has been paid should be refunded, and IT-292 should be amended to reflect the Tax Court of Canada decision.
As previously noted, although we are unable to comment directly on the impact of the Brantford case on the XXXXXXXXXX audit, we can offer the following comments about the precedential value of the Brantford case.
The case of The Corporation of the City of Brantford v. Canada, [1988] T.C.J. No. 1073 Court File No 97-2049(GST)I involved the rebate of Goods and Services Tax (“GST”) in respect of allowances paid by the city to members of its council. The Brantford case was an appeal heard in what is known as an “informal procedure” of the court. Section 18 of the Tax Court of Canada Act contains the rules regarding informal procedure. Section 18.28 of The Tax Court of Canada Act states that “a judgment on appeal referred to in section 18 shall not be treated as a precedent for any other case.” Cases in which the Informal Procedure was used are viewed as not being precedent setting and they are largely a finding of fact.
The Minister’s position in that case was that the city did not provide any evidence on how the allowance paid to its officers was to be used and the allowance was not necessarily for supplies all or substantially all of which are taxable supplies. The Minister also questioned whether the allowance was reasonable.
Fact number 17 of the statement of agreed facts of the case was “The Municipal allowances are allowances for “expenses incident to the discharge of the [officers’] duties...as [officers] within subsection 81(3) ... and thus were properly excluded in calculating the recipient’s income for the purposes of that [statute].” Consequently, none of the issues of the case disputed the determination of the amount of the allowance. At issue was the treatment of the allowance for GST purposes. In our view, the Brantford case is of no value in determining the amount of an allowance for purposes of subsection 81(3) of the Act. In addition, it is unlikely that the Brantford case would be referred to during an Income Tax audit since the case involves a rebate of GST.
The judge’s comments, quoted in XXXXXXXXXX letter, concerned the fact that the recipients of the allowances were not required to account for the use of the money. This is in accordance with paragraph 4 of IT-292 which states that general expense allowances and mileage or travelling allowances are non-accountable payments.
In XXXXXXXXXX letter he states that the Interpretation Bulletin, IT-292, places additional requirements on municipalities without provincial enabling legislation, which is not supported by the Income Tax Act and claims that municipalities affected by these additional requirements are discriminated against.
The law is contained in the Acts themselves and in the Regulations. Although Interpretation Bulletins are not law, these bulletins can generally be relied upon as reflecting the Department's interpretation of the law to be applied on a consistent basis by departmental staff. In our view, if not for the position in paragraphs 6 and 7 of IT-292, subsection 81(3) would only apply when an eligible person has actually been paid an allowance. Paragraph 6 of IT-292, however, allows an amount to be considered an allowance when a deeming provision exists in the provincial Municipal Act, even though the local by-laws may require another allocation of salary. When there is no deeming provision in the Municipal Act, paragraph 7 of IT-292 says the Department will consider up to one third of the total arrived at in paragraph 3 to be an allowance. The position, therefore, provides alternatives, rather than restrictions, in the calculation of an allowance for purposes of subsection 81(3) of the Act, by taking into consideration the provisions of provincial Municipal Acts and local by-laws.
You have indicated that you endorse the recommendation contained in the letter from XXXXXXXXXX regarding providing a one year transition period concerning changes made to interpretations and application of the Act. You should note that the purpose of Interpretation Bulletins (ITs) is to provide Revenue Canada’s interpretation of the income tax law that it administers and to announce significant changes in departmental interpretations and their effective dates. Revenue Canada, through its publications, ensures taxpayers are informed of changes in the Department’s interpretation of the law. Moreover, it should be noted that IT-292 reflects the Department’s long-standing position on this issue and that it was released on February 23, 1976.
We trust our comments 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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