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.
Principal Issues: 1) Whether a taxpayer qualifies for the northern residents deduction. 2) Whether a particular allowance can be excluded from income under subparagraph 6(6)(b)(ii) of the Act.
Position: 1) Question of fact but it appears that the taxpayer does not qualify. 2) Question of fact - general comments only.
Reasons: The law.
XXXXXXXXXX
2010-036480
Michael Cooke, C.A.
June 3, 2010
Dear XXXXXXXXXX :
Re: Northern Residents Deduction and Remote Work Location Transportation Allowances
We are writing in response to your correspondence of April 7, 2010, wherein you requested our views on the availability of the remote work location income exclusion in subsection 6(6) of the Income Tax Act (the "Act") and the northern residents deductions in section 110.7 of the Act in your circumstances.
Briefly, in your letter you indicate that you are employed at a work site that is located approximately 300 kilometres north of XXXXXXXXXX , Northwest Territories. You work for a XXXXXXXXXX period after which you return to your home in XXXXXXXXXX for XXXXXXXXXX . Your employer provides you with board and lodging while you are at the work site and provides for transportation between XXXXXXXXXX and the work site. However, you are required to pay for the travel costs to get to and from XXXXXXXXXX . Your employer pays an allowance labeled an "attraction and retention allowance" that appears to be intended, at least in part, to cover such travel costs.
Our Comments:
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to offer the following comments.
Northern Residents Deduction
The northern residents deductions consist of a deduction in respect of certain travel benefits in paragraph 110.7(1)(a) of the Act and a deduction in respect of living costs in paragraph 110.7(1)(b) of the Act. A taxpayer may qualify for the deductions if he or she resides in one or more prescribed zones, throughout a period of at least six consecutive months commencing or ending in the year (referred to as the "qualifying period"). For these purposes the prescribed zones are a "prescribed northern zone" or "prescribed intermediate zone" as defined in section 7303.1 of the Income Tax Regulations. While all places in the Northwest Territories are in a prescribed northern zone it appears that your home in XXXXXXXXXX is not in any prescribed zone.
As noted above, a taxpayer must reside in a prescribed zone for six full consecutive months (not just parts of calendar months) to have a qualifying period for purposes of the northern residents deduction. It frequently happens that a taxpayer resides in a prescribed zone for employment purposes but also has a principal place of residence that is not in a prescribed zone. In such a situation, the fulfillment of the qualifying period will depend on the number and length of absences from the prescribed zone and the purpose of such absences. There is no definitive formula for this determination. Generally speaking, short or infrequent absences from a prescribed zone will not cause us to consider that the consecutive six month period has been interrupted. However, if the taxpayer returns to his or her principal place of residence outside of a prescribed zone on a fairly frequent basis, for example, on most weekends, or at the end of most normal working periods, then the consecutive six month residency requirement will not be met.
While a question of fact, since it appears that you regularly return to your home which is located outside of a prescribed zone on a fairly frequent basis, the qualifying period requirement will not be met.
Remote Work Location
Interpretation Bulletin IT-91R4, "Employment at Special Work Sites or Remote Work Locations" discusses in detail the operation of the exemptions provided by subsection 6(6) of the Act. We will limit our discussion to the exemption related to remote work locations. In general terms, under subparagraph 6(6)(a)(ii) of the Act where an employee works at a location that qualifies as a remote work location, the value of, or a reasonable allowance in respect of, board and lodging at the remote work location can be excluded from that employee's income. In addition, subparagraph 6(6)(b)(ii) of the Act provides that the value of, or a reasonable allowance for, transportation between that remote work location and any location in Canada can be excluded from the employee's income.
Whether the various specific requirements of subsection 6(6) of the Act have been met in any particular situation is a question of fact that can only be determined on a case-by-case basis. However, provided these conditions are otherwise met, it is our view that where employees are transported from a common collection point to a remote work location, the employer can also provide a reasonable tax-free transportation allowance in respect of its employees' travel en route to that collection point, provided the overall trip is completed in a reasonably direct and timely manner. In other words, it is conceivable and reasonable to acknowledge that there can be more than one leg in a journey between the employee's remote work location and any other location in Canada such as the employee's home.
We trust our comments will be of assistance.
Renée Shields
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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