16 February 1999 Income Tax Severed Letter e9833315.txt - 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: can a travel allowance be paid in advance on a per hour basis?

Position: YES,

Reasons: income tax guides and 110.7(1)

XXXXXXXXXX 983331
C. Tremblay
Attention: XXXXXXXXXX

February 16, 1999

Dear XXXXXXXXXX:

Re: Northern Resident’s Deduction

This is in reply to your letters of December 16, 1998, and January 5, 1999, requesting our assistance with respect to a travel expense allowance negotiated as part of the collective agreement between XXXXXXXXXX which is located in the Yukon. The collective agreement was signed in 1996 and covers wages paid in 1997 and 1998. A dispute concerns whether the employees are eligible for the deduction under paragraph 110.7(1)(a) of the Income Tax Act (the “Act”).

In the Union’s contract with XXXXXXXXXX, you refer us to the Transportation Allowance clause which states: “XXXXXXXXXX". This specific clause requires the company to designate the eligible portion of the employee’s existing wages as being “travel benefits".

In our letter of July 28, 1998, to XXXXXXXXXX, a copy of which you enclosed, we opined that 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. We are still of that view. We base our reasoning on the words of paragraph 110.7(1)(a) of the Act which states “...by an amount received...in the year by the taxpayer in respect of the taxpayer’s employment in the particular area by a person with whom the taxpayer was dealing at arm’s length in respect of travel expenses incurred...”.

Our guide titled Employers’ Guide to Housing and Travel Assistance Benefits Paid in Prescribed Zones, discusses various ways by which Travel Assistance benefits may be paid by an employer in respect of travel taken or to be taken by an employee. Chapter 3 of the guide allows a corporation to pay employees a travel allowance before the trip, such as a certain amount per hour, or on some other periodic basis, as well as by making lump-sum payments before or after the trip is taken.

Accordingly, in our view, a reasonable agreed per hour amount specified in an employment contract paid as an advance towards the trips is an acceptable manner of providing travel assistance for employees residing in a prescribed zone. However, it should be clear to all employees that the amount shown in box 32 of the T-4 information slip, eligible for the Northern Residents Travel Deduction is limited to the amount reported in that box.

We trust that our comments will be of assistance to you

Your truly

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

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