27 May 2003 External T.I. 2003-0000845 - ALLOWANCE PAID TO CROWN CORP.

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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues: Whether amounts paid to board members and the Director of a crown corporation would be tax-free because of clause 6(1)(b)(i)(A)

Position: Clause would not apply. However, other exceptions may be applicable e.g. 6(1)(b)(vii) and (vii.1), 6(6), and 81(3.1).

Reasons: Clause 6(1)(b)(i)(A) only applies when a set allowance is provided for in an Act of Parliament. Consistent with prior opinions.

XXXXXXXXXX Wayne Antle, CGA
2003-000084
May 27, 2003

Dear XXXXXXXXXX:

Re: Technical Interpretation Request: - Allowances for living expenses

This is further to your letter of January 27,2003 concerning the tax treatment of travel, personal and living allowances paid to members, and the Director of the XXXXXXXXXX.

Our understanding of the facts is as follows:

XXXXXXXXXX.

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. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments.

Our Comments

The tax treatment of the payments would depend upon whether they constitute an allowance or a reimbursement of expenses. This can only be determined after reviewing all of the facts and documentation including the employment contracts, employer's written policies, and the method and nature of the payments. Since you have indicated in your correspondence that the board members were paid an allowance, we will consider the issue on this basis.

Allowances paid to employees are generally taxable pursuant to paragraph 6(1)(b) of the Act. Paragraph 6(1)(b) includes in income "all amounts received by the taxpayer in the year as an allowance for personal or living expenses or as an allowance for any other purpose" unless it falls within one of the specific exceptions in the Act. In particular, you have made reference to the exception found in clause 6(1)(b)(i)(A) of the Act. This provision excludes from employment income "travel, personal or living expense allowances expressly fixed in an Act of Parliament".

In our view, clause 6(1)(b)(i)(A) only applies where a specific amount (e.g. $1,000 per month) is set as an allowance for travel, personal or living expenses in an Act of Parliament. XXXXXXXXXX does not specifically provide for the payment of a set allowance to cover travel, personal and living expenses. Accordingly, it is our view that the payments would not fall within the exception of clause 6(1)(b)(i)(A).

However, the payments may fall within one of the other exceptions found in subparagraph 6(1)(b)(vii) or (vii.1), or subsection 6(6) or 81(3.1) of the Act.

Subparagraphs 6(1)(b)(vii) and (vii.1)

These provisions exclude from income reasonable allowances paid to employees for employment-related travel and motor vehicle expenses incurred while travelling away from the municipality and the metropolitan area (if there is one) where the employer's establishment, at which the employee ordinarily worked or to which the employee ordinarily reported, is located. For more information on these exceptions, please refer to Interpretation Bulletin IT-522R Vehicle, Travel, and Sales Expenses of Employees.

Subsection 6(6)

Subsection 6(6) of the Act excludes an allowance from an employee's income when it is received in respect of expenses incurred by the employee for board and lodging during a period at a special work site or remote work location. Please refer to interpretation bulletin IT-91R4 Employment at Special Work Sites or Remote Work Locations for more information on this exclusion.

Subsection 81(3.1)

Subsection 81(3.1) of the Act excludes from income amounts received by an individual in respect of part-time employment as an allowance for, or reimbursement of travel expenses during a period throughout which the individual has other employment or is carrying on a business. Such allowances are generally not included in income to the extent that they are paid by the employer and do not exceed a reasonable amount. Please refer to IT-522R for more details on this provision.

If you wish to discuss whether the payments would fall within any of the above exceptions, you may contact the Trust Accounts Division of the Ottawa Tax Services Office. The publications referred to above can be obtained from our website at www.ccra-adrc.gc.ca.

We trust that our comments will be of assistance.

Yours truly

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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