16 February 1995 Internal T.I. 9431017 - MEAL ALLOWANCE REDUCTION

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.

		February 16, 1995

	Calgary Tax Services	Head Office
	Attn: Allen Ma	Rulings Directorate
	      Large Case Files	A.M. Brake
	      W/S 442-1       	(613) 957-8953
		943101

Meals and Allowances, paragraph 67.1(2)(d) and (e)

This is in reply to your referral of November 22, 1994 wherein you requested our views on the exemptions from subsection 67.1(1) as provided by subsection 67.1(2), specifically paragraph (e) thereof as it relates to non-accountable allowances paid to employees for food and/or meals under certain circumstances to employees who are not in travel status. Reference was made to article 9128 in "Canadian Tax Reporter" and article 1096 in "Window on Canadian Tax" quoting a January 18, 1991 technical interpretation given by this division.

It might be noted that subsections 67.1(1) and (2) are not relevant in considering whether a benefit or allowance is taxable in the hands of an employee. Hence, for purposes of determining the status of the employee, it is not relevant whether an exemption to the employer from subsection 67.1 is provided or not.

Paragraph 6(1)(a) requires to be brought into income an amount relating to a benefit in respect of board or lodging and any other benefits of any kind whatever except benefits described in subparagraphs 6(1)(a)(i) through (v). Paragraph 6(1)(b) requires all allowances to be brought into income in the year received for personal living expenses or as an allowance for any purpose to the extent that they are not described within the exceptions set out in subparagraphs (i) to (xi) thereof. Allowances received as meal or food allowances that are not described in the exceptions are subject to tax unless specifically exempted by some other provision of the Act and in this regard subsection 6(6) will be discussed later. Hence, it can be said that, generally speaking, the value of free meals constitute a taxable benefit under paragraph 6(1)(a) and that non-accountable allowances are required to be brought into income by virtue of paragraph 6(1)(b), subject, of course, to the exceptions provided by these respective provisions (paragraphs (a) and (b)), unless they are exempted by virtue of paragraph 6(6)(a) which provides exemption for allowances received at a special work site or remote area. Subparagraph 6(6)(a)(i) applies to non-accountable allowances paid to employees at a special work site whereas subparagraph 6(6)(a)(ii) relates to non-accountable allowances at a remote location.

Subsection 67.1(1) requires that an employer bearing the cost of "human consumption of food or beverages..." reduce the cost of such outlays unless the amounts expended are described within the exceptions contained in subsection 67.1(2). Paragraph 67.1(2)(d) provides an exception where the amount,

"is required to be included in computing the income of an employee of the person or would be so required but for subparagraph 6(6)(a)(ii)".

In other words, amounts spent on meals and allowances taxable under paragraphs 6(1)(a) and (b), unless exempted by paragraph 6(6)(a), fall within the paragraph 67.1(2)(d) exception as do amounts required to be taken into income under paragraph 6(1)(a) and (b) that have been otherwise exempted by virtue of subparagraph 6(6)(a)(ii). Amounts that fall within the purview of paragraphs 6(1)(a) and (b) that are exempted by subparagraph 6(6)(a)(i) do not fall within the exclusion provided by paragraph 67.1(2)(d) and are therefore subject to 67.1(1) unless exempted by paragraph 67.1(2)(e).

The exemption in paragraph 67.1(2)(e) is generally only available where the employer either provides the food, beverage or entertainment directly or makes the arrangements to provide these things. Allowances and reimbursements paid to employees who purchase food, beverages or entertainment are not eligible for this exemption from the 80% (now 50%) limitation, unless extenuating circumstances exist (such as a lack of catering facilities at the location) that prevent the employer from providing the services or making the arrangements to provide them. Accordingly, in our view, under extenuating circumstances, non-accountable allowances may qualify for the paragraph 67.1(2)(e) exception.

R. Albert
for Director
Business and General Division
Rulings Directorate
Policy and Legislation Branch