You may provide an allowance or a reimbursement to your employee to compensate for travel expenses (other than automobile or motor vehicle expenses) they incur in connection with or in the course of their office or employment duties.

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• Steps
• References

Steps

1. Determine if the employee is required to travel in the course of their employment duties

   You need to determine if the employee was required to travel in the course of their employment duties.

   • If you did not require your employee to travel in the course of their employment duties, the allowance or reimbursement provided to your employee is taxable.

     Continue to: Step 5 - Calculate the value to be included on the T4 slip.

   • If you required your employee to travel in the course of their employment duties, the allowance or reimbursement provided to your employee may not be taxable.

     Continue to: Step 2 - Determine if any exceptions apply to the travel allowance or reimbursement you provide.

2. Determine if any exceptions apply to the travel allowance or reimbursement you provide

   The allowance or reimbursement you provide to your employee for travel expenses may not be taxable if one of the following exceptions apply:

   • Your employee works in a remote location
   • Your employee works at a special work site, including a work site located in a prescribed zone

   • If one of the above exceptions applies, do not continue to next step.

     Learn more on the above exceptions using the links depending on your situation.

   • If one of the above exceptions does not apply, the travel allowance or reimbursement your employee receives may be taxable.

     Continue to: Step 3 - Determine if the travel allowance or reimbursement is reasonable.

3. Determine if the travel allowance or reimbursement is reasonable

   Generally, the CRA considers an allowance or a reimbursement reasonable if all conditions are met:

   • Allowance
     

     If you provide an allowance to your employee for travel expenses, you must consider all of the facts relevant to your employee's situation to determine if the amount of an allowance is reasonable, or in some cases, not greater than a reasonable amount.

     To determine if the amount of the allowance is reasonable, you should compare the reasonable costs for travel expense that you would expect your employee to incur against the allowance you pay to the employee for the trip.

     The amount for the allowance covers the expenses that you reasonably expect your employee to have to pay and you can justify your position.

   • Reimbursement or accountable advance
     

     If you provide a reimbursement to your employee for travel expenses, you must determine if the amount of the reimbursement is reasonable. The amount for the reimbursement or the accountable advance is considered reasonable if it meets all of the following conditions:

     • The amount covers the actual employment-related expenses your employee incurred on your business.
     • Your employee kept records and you received a copy to support these amounts.

   • If the amount of the travel allowance or reimbursement you provide is not reasonable, the allowance or reimbursement is taxable.

     Continue to: Step 5 - Calculate the value to be included on the T4 slip.

   • If the amount of the travel allowance or reimbursement you provide is reasonable, the allowance or reimbursement may not be taxable.

     Continue to: Step 4 - Determine if the travel allowance or reimbursement is taxable.

4. Determine if the travel allowance or reimbursement is taxable

   Generally, if you provide an allowance or a reimbursement for travel expenses to an employee who is not required to travel in the course of performing employment duties or for their personal travel, the allowance or reimbursement is taxable. Depending on your situation, the allowance or reimbursement may not be taxable under the Income Tax Act or the CRA's administrative policy.

   Situations

   Situation: Your employee works part-time
   

   Non-taxable situation

   Under the Income Tax Act (ITA), if you provide an allowance not greater than a reasonable amount (step 3) or a reimbursement to your part-time employee for travel expenses, the allowance or reimbursement is not taxable if all of the following apply:

   • Your employee incurs the expenses for travel to and from the part-time job.
   • The travel expenses are for expenses other than those incurred in the performance of the duties of the employee’s part-time employment.
   • You and your employee are at arm's length.
   • Throughout the period in which travel expenses are incurred, your employee is in one of the following situations:
     
     • Employee is a teacher or professor who works part-time and all of the following apply:
       
       • Works in a designated educational institution in Canada.
       • Provides service to you as a teacher or professor.
       • The location of their employment is 80 kilometres or more from their home.
     • Employee works part-time and all of the following apply:
       
       • Employee has other employment or carries on a business outside of their employment with you.
       • The location of their employment is 80 kilometres or more from both their home and the place of the other employment or business.
   • The amount of the allowance or reimbursement is reasonable (step 3).

   A thorough review of the facts in each specific situation must be done to determine if the allowance or reimbursement is taxable. This includes determining that the travel allowance you provided is not greater than a reasonable amount.

   Learn more: Income Tax Folio S1-F5-C1, Related persons and dealing at arm's length.

   Taxable situation

   If the allowance or reimbursement you provide to your employee for travel expenses does not meet all of the conditions above, the allowance or reimbursement is taxable.

   Situation: Your employee is an agent selling property or negotiating contracts, or a member of the clergy
   

   Non-taxable situation

   Under the Income Tax Act (ITA), if you provide a reasonable allowance or a reimbursement to your employee who is an agent selling property or negotiating contracts or a member of the clergy for travel expenses, the allowance or reimbursement is not taxable if all of the following apply:

   • The expenses are related to the performance of their employment duties (step 2).
   • The amount of the allowance or reimbursement is reasonable (step 3).

   Taxable situation

   If the allowance or reimbursement you provide to your employee for travel expenses does not meet all of the conditions above, the allowance or reimbursement is generally taxable.

   Situation: You provide an allowance to your employee who is a member of the Canadian Forces
   

   Non-taxable situation

   Under the Income Tax Act (ITA), if you provided an allowance to your employee who is a member of the Canadian Forces for travel expenses, the allowance may not be taxable.

   Learn more from the Department of National Defence: Chapter 209 - Transportation and Travelling Expenses.

   Situation: You provide an allowance to your employee who is away from the municipality and metropolitan area
   

   Non-taxable situation

   Under the Income Tax Act (ITA), if you provide a reasonable travel allowance (other than an allowance for the use of a motor vehicle) to your employee for travelling away from the municipality and metropolitan area (if there is one), the allowance is not taxable if all of the following apply:

   • The travel allowance is provided for travel away from the municipality and metropolitan area (if there is one) where your establishment is located and where your employee ordinarily reports.
   • The expenses are related to the performance of their employment duties (step 2).
   • The amount of the allowance is reasonable (step 3).

   Taxable situation

   If the allowance you provide to your employee for travel expenses does not meet all of the conditions above, the allowance is generally taxable.

   Situation: You provide an allowance to your employee who is within the municipality and metropolitan area
   

   Non-taxable situation

   Under the CRA's administrative policy, if you provide a reasonable travel allowance (other than an allowance for the use of a motor vehicle) to your employee for travelling within the municipality and metropolitan area (if there is one), the allowance is not taxable if all of the following apply:

   • The municipality and metropolitan area (if there is one) is where your establishment is located and where your employee ordinarily reports.
   • The travel allowance is provided to your employee to perform their duties in a more efficient manner during a work shift.
   • Your employee travels away from the office.
   • The amount of the allowance is reasonable (step 3), for meal expenses this is generally up to $23 including taxes (higher amounts may be reasonable if the meal cost in a location is higher).
   • You can justify your position regarding the amount being reasonable (step 3).
   • You are the primary beneficiary of the allowance.
   • The travel allowance is not a form of additional remuneration and is not a form of tax avoidance.

   This means that you do not have to include this type of travel allowance in your employee’s income if its main reason is so that your employee's duties are performed in a more efficient way during a work shift.

   Examples
   

   Examples

   Examples	Result
   Antoine installs and repairs power lines for a hydroelectric company. He works in an area of the municipality located over an hour from his office, where he would normally have lunch. Instead of Antoine driving to the office for lunch and returning to his workplace afterward, the employer pays him a reasonable meal allowance to allow him to eat at a restaurant closer to where he performs his duties. The employer is the primary beneficiary of this arrangement and the allowance would not be included in Antoine's salary.	The allowance is not taxable.
   Jeannine works for DEF Corporation and must occasionally use her vehicle to travel into the municipality for supplies as part of her duties. This normally takes up most of her day. DEF gives Jeannine a daily allowance of $50 to cover vehicle expenses and all food and drink expenses that she may incur while performing her duties away from her regular workplace. Because this policy does not include a motor vehicle allowances, we would consider the $50 allowance that would cover her meals and her motor vehicle expenses to be unreasonable.	The entire allowance is taxable for Jeannine unless DEF Corporation can prove that the portion related to meals is reasonable under the circumstances.
   An employer gives its employees a travel allowance that covers food while the employees travel away from their regular workplace to perform their duties of employment. One of the employees returns to the office before noon and stays there until having to go to an appointment that afternoon. It would be to the employee's advantage to return to the office to have his meal.	The allowance is taxable. By choosing to return to the office for lunch, the employee is the primary beneficiary. However, if it happens that the employee is legitimately away from the office during his normal meal break, the allowance for those days may be excluded from his income.

   
   

   Taxable situation

   If the allowance you provide to your employee for travel expenses does not meet all of the conditions above, the full amount is taxable.

   Situation: Your employee is sent on a business trip
   

   Non-taxable situation

   Under the CRA's administrative policy, if you provide an allowance or reimbursement for travel expenses for a business trip taken by your employee and the expenses are for business-related travel expenses, the allowance or reimbursement is not taxable if all of the following apply:

   • The amount of the travel expenses is reasonable (step 3).
   • You require the employee’s presence on the business trip to accomplish the business objectives of the trip and this is the main purpose of the trip.
   • Your employee spends more than 50% of the time on business-related activities.

   Taxable situation

   If the allowance or reimbursement you provide to your employee for travel expenses does not meet all of the conditions above, the allowance or reimbursement is taxable.

   If your employee is required to perform employment duties as part of the trip, the amount included in the your employee’s income can be reduced for any employment-related activity.

   For example, where a business trip is extended by your employee, only the amount related to the extension of the trip is taxable.

   Situation: You reimburse travel expenses for your employee’s spouse or common-law partner on a business trip taken by your employee
   

   Non-taxable situation

   Under the CRA's administrative policy, if you reimburse your employee's spouse or common-law partner for travel expenses, the reimbursement is not taxable if all of the following apply:

   • The amount of the travel expenses paid for the spouse is reasonable.
   • You requested the spouse or common-law partner to be present on the business trip.
   • The spouse or common-law partner was mostly engaged in business-related activities.

   Taxable situation

   If the reimbursement you provide to your employee for travel expenses for your employee’s spouse or common-law partner does not meet all of the conditions above, the reimbursement is generally taxable to the employee.

   
   

   • If the allowance or reimbursement is not taxable, you do not need to do any calculations.

     Do not continue to next step.

   • If the allowance or reimbursement is taxable, continue to: Step 5 - Calculate the value to be included on the T4 slip.

5. Calculate the value to be included on the T4 slip

   If the allowance or reimbursement is taxable, the value is equal to:

   • Total value of the allowance or reimbursement received or enjoyed
   • minus Any amounts your employee reimbursed you
     
   • equals Value to be included on the T4 slip in box 14 and code 40

   The amounts must be included in the pay period they were received or enjoyed.

   Example 1 - No calculation

   An employer paid an allowance of $4,000 to his employee for travel expenses. The employee is sent to Toronto in Ontario for 9 days to meet with key partners. Presence is required on all days with free time to tour Toronto at their own expense. The airfare for the employee is $1,300. The hotel cost is $300 per night for 9 nights for a total of $2,700.

   The allowance paid by the employer is not taxable because the allowance is for travel expenses in the course of their office or employment duties.

   You do not need to do any calculations.

   Example 2 - Calculations

   An employer paid an allowance of $5,200 to his employee for travel expenses. The employee is sent to Niagara Falls in Ontario for 9 days to meet with key partners. The employee requested to stay an additional four nights after the end of the meetings and was allowed to do so by the employer. The extra days resulted in no increased cost for the flights, but four additional nights’ accommodations. Presence is required on all days with free time to tour Niagara Falls at their own expense. The airfare for the employee is $1,300. The hotel cost is $300 per night for 13 nights for a total of $3,900.

   • $5,200 is the total value of the travel allowances
   • minus $4,000 ($2,700 for 9 nights + $1,300 airfare) is the amount of the travel allowance that is not taxable
     
   • equals $1,200 (4 nights) is the value of the allowance
   • minus $0 because the employee does not reimburse the employer
     
   • equals $1,200 is the value of the allowance to be included on employee's T4 slip
   Example 3 - Calculations

   An employer paid an allowance of $200 monthly ($2,400 yearly) to his part-time employee for travel expenses. The employee is a teacher at a designated educational institution. The school is 60 kilometres from their home.

   • $2,400 is the total value of the travel allowances
   • minus $0 because the employee does not reimburse the employer
     
   • equals $2,400 is the value of the allowance to be included on employee's T4 slip

6. Determine if you need to fill out Form T2200

   If the allowance has been included in your employee’s income, your employee may be eligible to deduct employment expenses if certain conditions are met and you may need to fill out Form T2200, Declaration of Conditions of Employment.

   It is your employee’s responsibility to claim the expenses on their income tax and benefit return and to keep records to support the claim.

7. Withhold payroll deductions and remit GST/HST

   The withholding and remitting requirement depends on the type of remuneration: cash, non-cash, or near-cash.

   You must withhold the following deductions:

   • Non-cash and near-cash: Option 1

     Withhold:

     • Income tax
     • CPP
     • EI (do not withhold)

     Remit:

     • GST/HST in certain situations

   • Cash: Option 2

     Withhold:

     • Income tax
     • CPP
     • EI

     Do not remit:

     • GST/HST (do not remit)

   The amounts must be included in the pay period they were received or enjoyed.

   Learn how to calculate deductions and the GST/HST to remit: How to calculate - Calculate payroll deductions and contributions.

8. Report the benefit on a slip

   If the benefit is taxable, you must report the following amounts on the T4 slip:

   • Non-cash and near-cash: Option 1

     Report on:

     • Box 14 - Employment Income
     • Box 26 - CPP/QPP pensionable earnings
     • Code 40 - Other Information

   • Cash: Option 2

     Report on:

     • Box 14 - Employment Income
     • Box 24 - EI insurable earnings
     • Box 26 - CPP/QPP pensionable earnings
     • Code 40 - Other Information

   Learn how to report on a slip: Fill out the slips and summaries - File information returns (slips and summaries).

References

Legislation