25 January 2000 Internal T.I. 1999-0015257 - NORTHERN RESIDENTS DEDUCTION

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:

Does the term "travel expenses" as used for the purposes of paragraph 110.7(1)(a) of the Act and section 7304 of the Regulations include the cost of replacing a radiator of a vehicle?

Position

Depends on the circumstances.

Reasons:

See File # 980159 and 983032. "Travel expenses" includes air, train and bus fares, meals, hotel and motel accommodations, camping fees, incidentals such as taxis, road and ferry tolls, and automobile expenses directly related to the trip such as the cost of fuel, general maintenance (ex. oil, grease and servicing charges), repairs, licenses, and insurance as long as the costs are reasonable, are not on account of capital, and can reasonably be attributed to the trip.

With respect to the cost of replacing a radiator, in most circumstances, it would not be reasonable to attribute its entire cost to one particular trip. Generally, such a cost should be apportioned on the basis of distance travelled on the trip to the total kilometres travelled by that vehicle in that year. However, each case would have to be considered on its own merits. There may be circumstances under which the severity of weather conditions or poor road conditions warrants a different allocation of such costs. For example, if the taxpayer can demonstrate that the radiator was in relatively good shape (eg. the taxpayer can provide a receipt showing that it was fairly new) before the trip and had to be repaired or replaced after the trip because it was worn out from poor road conditions during the trip, then we would be inclined to accept the taxpayer's claim. The taxpayer should have to demonstrate that the deterioration of the radiator was due to poor weather or road conditions and not just ordinary wear and tear over time.

		January 25, 2000

	Marthe Wright	HEADQUARTERS
	Assistant Director, Client Services	G. Moore
	Edmonton Taxation Services Office	952-1506

		1999-001525

Northern Residents Deduction - Subsection 110.7(1)

We are writing with respect to the enclosed written enquiry of December 14,1999, we received from XXXXXXXXXX, in which she asked for our opinion regarding the meaning of "travel expenses" for the purpose of paragraph 110.7(1)(a) of the Income Tax Act (the "Act").

XXXXXXXXXX, has claimed on her XXXXXXXXXX income tax return as a travel expense, pursuant to subsection 110.7(1) of the Act, the cost of car repairs of $XXXXXXXXXX relating to her radiator. The client indicates that, while using her vehicle for a vacation in British Columbia, her radiator blew because of the extreme temperatures (35 to 40 degrees Celsius) and mountainous terrain and that if she had not used her vehicle for vacation travel, she would not have incurred this expense. She belies that this cost should be considered to be a "travel expense" for purposes of paragraph 110.7(1)(a) of the Act.

Our Comments

Paragraph 110.7(1)(a) of the Act permits a deduction of an amount determined by multiplying a specified percentage (defined in subsection 110.7(2)) by the travel benefits received or enjoyed by the taxpayer or a member of the taxpayer's household in connection with the taxpayer's employment in a prescribed northern zone or a prescribed intermediate zone, to the extent that:

a) the amount received or the value of the travel benefit does not exceed a prescribed amount (as defined in section 7304 of the Income Tax Regulations), is included in the taxpayer's income and not otherwise deducted by the taxpayer in computing income for the year or any other taxation year, and is not included in any medical expense tax credit (subsection 118.2(1) of the Act);

b) the travel expenses were incurred in respect of trips made in the year by the taxpayer or an individual who was a member of the taxpayer's household during the period in which the taxpayer resided in the particular year; and

c) the taxpayer or an individual who was a member of the taxpayer's household is not entitled to a reimbursement or any form of assistance in respect of travel expenses to which (b) above applies.

In addition, the taxpayer had to have resided, throughout a period of not less than 6 consecutive months beginning or ending in a taxation year, in one or more particular areas each of which is a prescribed northern zone or prescribed intermediate zone for the year. Also, the travel benefits must have been received from an employer with whom the taxpayer was dealing at arm's length. Pursuant to subsection 110.7(3) of the Act, the amount determined under paragraph 110.7(1)(a) of the Act for a taxpayer in respect of travel expenses incurred in a taxation year cannot represent the travel costs of more than 2 trips made by the taxpayer in the year (other than trips to obtain medical services that are not available in the locality in which the taxpayer resided).

The "prescribed amount" in (a) above is defined in subsection 7304(4) of the Regulations to be the lesser of the value of any travel assistance or amounts received in the period by the taxpayer from the taxpayer's employer in respect of travelling expenses for trips, and the total period travel costs (i.e. total of the trip costs to the taxpayer in respect of all the trips made by an individual in the taxpayer's household) to the taxpayer for the period in respect of an individual who was a member of the taxpayer's household. The trip cost to the taxpayer in respect of a trip made by an individual who was a member of the taxpayer's household, pursuant to subsection 7304(2) of the Regulations, is the least of three amounts:

a) the value of travel assistance from the taxpayer's employer in respect of travelling expenses for the trip plus any amount received by the taxpayer from his employer in respect of travelling expenses for the trip;

b) the value of travel assistance from the taxpayer's employer in respect of travelling expenses for the trip plus travelling expenses incurred by the taxpayer for the trip; and

c) the lowest return airfare ordinarily available at the time the trip was made to the individual for flights between the place in which the individual resided immediately before the trip and the designated city that is nearest to that place.

The issue is whether "travel expenses", for the purpose of paragraph 110.7(1)(a) of the Act and section 7304 of the Regulations, would include the cost of repairing a radiator if the cost was incurred during a vacation due to extreme weather conditions and mountainous terrain. The term "travel expenses" as used in paragraph 110.7(1)(a) of the Act and section 7304 of the Regulations is not defined in the Act. However, it is our view that "travel expenses", for the purpose of these provisions, includes air, train and bus fares, meals, hotel and motel accommodations, camping fees, incidentals such as taxis, road and ferry tolls, and automobile expenses directly related to the trip such as the cost of fuel, general maintenance (ex. oil, grease and servicing charges), repairs, licenses, and insurance as long as the costs are reasonable, are not on account of capital, and can reasonably be attributed to the trip. With respect to the cost of repairing a radiator, in most circumstances, it would not be reasonable to attribute its entire cost to one particular trip. We would think that generally, such a cost should be apportioned on the basis of distance travelled on the trip to the total kilometres travelled by that vehicle. However, each case would have to be considered on its own merits. There may be circumstances under which extreme weather conditions or the severity of poor road conditions (i.e., mountainous terrain) warrants a different allocation of such costs. For example, if the taxpayer can demonstrate that the radiator was in relatively good shape (eg. the vehicle was fairly new) before the trip and had to be repaired or replaced after the trip because it was worn out from poor road conditions or extreme weather during the trip, then we would be inclined to accept the taxpayer's claim. In our opinion, the taxpayer should have to demonstrate that the deterioration of the radiator was due to poor road conditions and extreme weather conditions and not just ordinary wear and tear over time. Where the vehicle is older, you may want to consider negotiating with the client a reasonable allocation of the expense. There clearly are no hard and fast guidelines with issues such as this and discretion could be exercised.

For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Agency's mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version or they may request a copy severed using the Privacy Act criteria which does not remove client identity. Requests for this latter version should be made by you to Jackie Page at 613 957-0682. The severed copy will be sent to you for delivery to the client.

We trust our reply will be of assistance in this matter.

J. Wilson
A/Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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