26 January 1998 External T.I. 9728805 - Living allowance as travel benefit

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:

Whether a deduction is available under paragraph 110.7(1)(a) in respect of an "isolation allowance" paid to employees.

Position: No

Reasons:

There must be a connection between the actual travel cost and the amount received by the employer to defray those costs.

972880
XXXXXXXXXX J.E. Grisé

Attention: XXXXXXXXXX

January 26, 1998

Dear Sirs:

Re: Northern Residents' Deduction

We have been asked to reply to your letter of September 25, 1997 to our XXXXXXXXXX Tax Services Office concerning the possible application of paragraph 110.7(1)(a) of the Income Tax Act to certain allowances received by the employees of XXXXXXXXXX pursuant to two collective agreements.

The two collective agreements refer to the allowances in question as an "isolation allowance". The clause relating to the isolation allowance in one agreement states "XXXXXXXXXX" The other agreement states that "XXXXXXXXXX".

In order for a taxpayer to deduct an amount in computing the taxpayer's taxable income for the year under paragraph 110.7(1)(a) of the Act, the taxpayer, inter alia, must have received an amount or benefits "in respect of travel expenses incurred by the taxpayer or another individual who was a member of the taxpayer's household." In our opinion, there must be a connection between the actual travelling expenses incurred by the taxpayer or a member of the taxpayer's household and the amounts paid by the taxpayer's employer to defray those costs. Since the amounts paid to the employees of XXXXXXXXXX as isolation allowances are not amounts paid as travel assistance, it is our view that the allowances would be included in the employees' income under subsection 5(1) or paragraph 6(1)(a) of the Income Tax Act and that no deduction would be permitted under paragraph 110.7(1)(a) of the Act in respect to the allowances.

We hope that our comments are of assistance.

Yours truly,

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