15 May 2007 External T.I. 2006-0215801E5 - Overtime Meal Allowance

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. Does the CRA administrative policy on the taxability of overtime meal allowances apply to all meal allowances paid to an employee or just those meal allowances paid once a pattern of frequency is established? 2. What is the impact on meal allowances paid prior to or after a "unique one-time event" that may cause an employee who normally does not have "frequent" meal allowances to have several occurrences in a period? 3. When a meal allowance is provided after two hours of overtime, is it a taxable benefit?

Position: 1. The CRA's administrative policy applies to all meal allowances. 2. There is no impact. 3. Generally yes.

Reasons: 1. Frequency of payment is not the only factor contained within the administrative policy. Generally, the other conditions must be met and the payment must occur less than three times per week for the amounts to fit within the policy. 2. The "unique one-time event" does not taint all subsequent or preceding meal allowances paid. 3. When a meal allowance is paid after 2 hours of overtime but before 3 hours of overtime, it is generally considered a taxable benefit.

									2006-021580
XXXXXXXXXX 								Kathryn McCarthy, CA
(613) 948-6106
May 15, 2007

Dear XXXXXXXXXX:

Re: Overtime Meal Allowance

This is in response to your e-mail of November 27, 2006 inquiring about the above noted subject matter. We apologize for the delay in our response.

You describe a situation in which the terms of a collective agreement provide that an employee required to work more than two hours of overtime in excess of the employee's daily schedule or shift is paid a meal allowance of $6.25. It sometimes happens that employees receive three or more overtime meal allowances in a week. In this regard, you have asked:

1. Does the Canada Revenue Agency's ("CRA") administrative policy on the taxability of overtime meal allowances apply to all meal allowances paid to an employee or just those meal allowances paid once a pattern of frequency is established?

2. What is the impact on meal allowances paid prior to or after a "unique one-time event" that may cause an employee who normally does not have "frequent" meal allowances to have several occurrences in a period?

3. When a meal allowance is provided after two hours of overtime, is it a taxable benefit?

The situation outlined in your letter appears to relate to a factual one, involving a specific taxpayer. It is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advanced income tax ruling. For more information about how to obtain a ruling, please refer to Information Circular 70-6R5, "Advanced Income Tax Rulings, dated May 17, 2002. This Information Circular and other CRA publications can be accessed on the internet at http://www.cra-arc.gc.ca. Should your situation involve a specific taxpayer and a transaction that has already been completed, you should submit all relevant facts and documentation to the appropriate Tax Services Office ("TSO") for their views. A list of TSO's 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 general comments, which may be of assistance.

Pursuant to paragraphs 6(1)(a) and (b) of the Income Tax Act, if a meal is provided or subsidized by an employer, it is considered to be a taxable benefit to the employee. However, as you have noted, the CRA has an administrative policy that an overtime meal allowance will not be included in employment income under certain conditions. In accordance with the policy, where a reasonable overtime meal allowance or reimbursement (an "Allowance") is provided, there is no taxable benefit if:

• the employee works three or more hours of overtime right after his or her scheduled hours of work;
• the overtime is infrequent and occasional in nature (less than three times a week); and
• in the case of an allowance, the employee in fact purchases a meal during or immediately following the overtime period.

The intent of the policy is to recognize that on occasions where an employer has required an employee to continue working past his or her regular work hours and the overtime is of sufficient duration that it is reasonable to assume that the employee requires a meal in order to continue working effectively, the employee will incur a cost that is greater than would normally be incurred if the employee had returned home after his or her regular workday. The policy acknowledges that the added cost is unavoidable for the employee and the actual benefit of the Allowance enjoyed by the employee is minimal once the employee has worked three hours of overtime.

Due to the fact that the policy on meal allowances takes into account factors in addition to the frequency of payment, the policy applies to all such Allowances and not just those that occur after a pattern of frequency is established. Allowances paid after two hours of overtime do not fit within the policy and it is likely that the CRA would consider that a taxable benefit results, including any applicable GST/HST. Although every situation is dependant on the specific facts, if an Allowance is paid on a frequent basis (more than twice a week), the CRA would tend to consider it to be a taxable benefit since it starts to take on the characteristics of additional remuneration. However, "unique one-time events" that may cause an employee who normally does not have frequent Allowances to have several occurrences in a week, do not taint other non-taxable Allowances that may have been paid prior or subsequent to that occurrence.

Yours truly,

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