27 October 2010 External T.I. 2010-0362781E5 - Travel Expenses and Allowances

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: The deductibility of travel expenses (i.e., transportation, lodging and meals) by an employee or whether the employer can pay a tax-free allowance to the employee where an employee works on a construction site that is a road and is unable to return home at the end of the day.

Position: Question of fact. However, employee-paid amounts may be deductible or employer-paid amounts may be non-taxable in the particular circumstances.

Reasons: Various.

XXXXXXXXXX
									2010-036278
									Michael Cooke, C.A.
October 27, 2010

Dear XXXXXXXXXX :

Re: Travel Expenses and Allowances

This is in response to your correspondence of May 1, 2010, inquiring whether a non-taxable allowance for travel expenses could be paid to an employee or whether travel expenses could be deducted under section 8 of the Income Tax Act (the "Act") in the particular circumstances described in your letter.

Briefly, we understand that certain employees of a taxpayer (the "Employer") work at various road construction sites ("work sites") in the province. Employees are required by the Employer to provide their own travel trailer as living accommodations if the particular work site is located a significant distance from the municipality or metropolitan area where they ordinarily live such that it would be unreasonable and impractical for the employee to return home nightly. Typically, an employee will set up his or her travel trailer at a campground that is located near the work site or if there is no campground available the trailer will be set up somewhere else near the work site.

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 a request for an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, Advanced Income Tax Rulings, dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the internet at http://www.cra-arc.gc.ca. Where the particular transactions are complete, the inquiry should be addressed to the relevant tax services office, a list of which is available on the "Contact Us" page of the CRA website. Although we cannot comment on your specific situation, we are prepared to provide the following comments in respect of the issues that you raised. Please note, however, that these comments are of a general nature only and are not binding on the CRA.

Paragraph 8(1)(h.1) of the Act permits a deduction for motor vehicle expenses incurred in the course of performing the duties of employment where the individual is required to carry on those duties away from the employer's place of business or in different places and is responsible for such expenses. As described in Paragraph 32(c) of Interpretation Bulletin IT-522R, Vehicle, Travel and Sales Expenses of Employees, the expression "an employer's place of business" generally is considered to have reference to a permanent establishment of the employer such as an office, factory, warehouse, branch or store, or to a field office at a large construction job. When considering the deductibility of travel expenses or motor vehicle expenses under section 8 of the Act and whether an employee is ordinarily required to carry on the duties of the office or employment away from the employer's place of business or in different places, one of the factors that must be considered is whether the employee's place of work is considered to be his or her "regular place of employment". The Courts and the CRA generally agree that the cost of traveling between an employee's home and the employee's regular place of employment is personal travel, irrespective of the distance travelled.

Accordingly, it remains a question of fact that can only be determined on a case-by-case basis as to whether any given work location would be considered a place of business of a particular employer and/or a regular place of employment of a particular employee. However, in a situation such as might be described in your letter (i.e., where an employee's work site changes frequently as work progresses; the work sites are located a significant distance from the municipality or metropolitan area where the employee ordinarily lives such that it would be unreasonable and impractical for the employee to return home nightly) if the particular employer does not otherwise maintain a significant field office at or near such work sites, it is our general view that such work sites would not normally be considered as the employer's place of business or the employee's regular place of employment. Our views are based, in part, on the principles established by the Federal Court of Appeal in a case called "Dionne v. the Queen", 2006 DTC 6146.

Taking the above into account, in such circumstances an employee might be able to deduct reasonable amounts for lodging and board as travel expenses under paragraph 8(1)(h) of the Act while working at such work sites and/or reasonable motor vehicle expenses under paragraph 8(1)(h.1) of the Act for travel between the employee's home and such work sites and/or the employee's trailer and such work sites. We would note, however; that there is no provision in section 8 of the Act that would allow any employee to deduct any part of the cost of a personally-owned travel trailer (including capital cost allowance or interest).

It might also be possible for an employer to exclude certain employer-paid amounts for board, lodging and travel from an employee's income pursuant to subsection 6(6) of the Act in such circumstances provided the particular work sites qualify as a "special work site" or a "remote work location" of the particular employee. We refer you to Interpretation Bulletin IT-91R4, Employment at special work sites or remote work locations for more information on these rules.

However, whether an employer can provide an employee with a non-taxable travel allowance described in subparagraph 6(1)(b)(vii) and/or a non-taxable motor vehicle allowance described in subparagraph 6(1)(b)(vii.1) of the Act , in such circumstances, will depend on whether such travel has taken place in the performance of the duties of employment by the employee and whether the amount of such an allowance is reasonable, which are questions of fact. We would note that any motor vehicle allowance that does not comply with the specific rules in subparagraphs 6(1)(b)(x) and (x.1) of the Act will be deemed not to be reasonable. Further, a motor vehicle allowance will generally be considered reasonable if the per-kilometer rate is designed to cover an employee's out-of-pocket costs to use the automobile in the course of performing the duties of employment. Section 7306 of the Income Tax Regulations prescribes the amount of a motor vehicle allowance that is considered reasonable for the purpose of determining its deductibility in computing the income from a taxpayer's business in accordance with paragraph 18(1)(r) of the Act. While the prescribed amount in section 7306 of the Regulations is generally accepted by the CRA as being reasonable for the purpose of paragraph 6(1)(b) of the Act, an amount that differs may also be considered reasonable depending on the particular circumstances.

We trust that these comments have been of assistance.

Yours truly,

Renée Shields
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch