28 March 2000 External T.I. 2000-0010055 - TRAVELLING ALLOW. FOR TRUCK DRIVER

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 travelling allowance based on an estimate of the average cost of room and board, to be paid by a company to an employed truck driver in respect of trips to Arizona and California, would be non-taxable.

Position: Whether an allowance is reasonable is a question of fact. However, it is likely non taxable.

Reasons: An allowance under subparagraph 6(1)(b)(vii) of the Act may generally be considered reasonable if it is based on an estimate of the average expense or travel cost that the employees will incur on an ongoing basis.

XXXXXXXXXX 	J. Gibbons
		2000-001005
Attention:  XXXXXXXXXX 

March 28, 2000

Dear XXXXXXXXXX:

We are replying to your facsimile of February 25, 2000, in which you requested our comments concerning a travelling allowance to be paid by your company to an employed truck driver. The travelling allowance would be paid in respect of trips by the driver to Arizona and California.

You should note that, since our tax system is based on self-assessment, an employer must normally determine on its own, having regard to income tax law and the administrative practices of the Canada Customs and Revenue Agency, as well as to the particular facts of a situation, whether an allowance paid to an employee is taxable or not. Further, you should also note that it is the responsibility of your local tax services offices to determine if the filing position of particular taxpayers is correct. Nonetheless, we have provided some general comments, which may be of assistance to you.

An allowance paid to an employee-truck driver for meals and accommodation is taxable under paragraph 6(1)(b) of the Income Tax Act (the "Act"), unless the exception in sub-paragraph 6(1)(b)(vii) of the Act applies. Under this subparagraph, an allowance will be exempt if:

(a) it is reasonable;

(b) it is received for travelling away from the municipality and the metropolitan area where the employer's establishment, at which the employee ordinarily worked or to which the employee ordinarily reported, was located; and

(c) it is received for travelling in the performance of the duties of the office or employment.

It is the Agency's position that the question of whether an allowance is reasonable can only be dealt with on a case-by-case basis, taking into account each employee's particular circumstances. However, in our view, an allowance under subparagraph 6(1)(b)(vii) of the Act may generally be considered reasonable if it is based on an estimate of the average expense or travel cost that the employees will incur on an ongoing basis.

If the Agency considers an allowance to be unreasonable, and the employee is unable to prove otherwise, the whole amount of the allowance is included in computing the employee's income under paragraph 6(1)(b) of the Act. However, the employee may be entitled to a deduction under paragraph 8(1)(h) of the Act for the amounts actually expended by him or her for meals and accommodation.

It is also our view that subsection 67.1(1) of the Act, which restricts the business deduction for the cost or expense for food, beverages, and entertainment to 50% of the actual cost or expense, applies to that part of an allowance described in subparagraph 6(1)(b)(vii) which is paid in respect of food and beverages.

We trust that these comments will be of assistance.

Yours truly,

John Oulton
for Director
Business and Publications Division
Income Tax Rulings Directorate

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