28 October 1987 Income Tax Severed Letter

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.

Revenue Canada Taxation Head Office

F.B Fontaine (613) 957-2140

Dear Sirs:

Re: Sections 56 and 110.7 and Paragraph 6(1)(a) of the Income Tax Act (the "Act")

This is in reply to your letter dated June 23, 1987 concerning the above-noted references to the Act as they apply to three hypothetical situations.

Our understanding of the first situation is as follows:

1. The taxpayers who are residents North of the 60th parallel (the "North") are employees of School Boards in the North which also have offices in the South, e.g. Montreal, Toronto, Vancouver, etc.

2. The employees, for 1 or 2 years at a time, work in the employers' offices in the South and then return to the North. The work in the South does not involve training programs.

3. The employers provide the employees with lodging in the South. As well, the employees and their families are given two paid trips annually for visits to the North.

Your question is whether the value of the trips given to the employees to visit the North should be allowed as a deduction under section 110.7 of the Act.

Our comments are as follows:

(1) The preamble to subsection 110.7(1) of the Act provides that an individual must have, "... throughout a period of not less than 6 months commencing or ending in the year, resided in ... a prescribed area for the year ...". This provision requires that the individual resides in the North. Accordingly, where the individual lives in the South for 1 or 2 years at a time, he would not be considered to have "... resided ... in a prescribed area ..." during that time for the purposes of section 110.7 of the Act. Therefore, the entitlement to a deduction for travel expenses under paragraph 110.7(1)(d) of the Act would depend on whether or not the individual resides in the North in a particular period. Where this requirement is not met the individual would not be entitled to the deduction under that paragraph.

Our understanding of the second situation is as follows:

1. Certain students resident in the North are sent to the South by the School Boards for post-secondary education while others are sent on training programs.

2. Funds for personal expenses, course fees, etc. for post-secondary students are provided by the School Boards and in the case of the other students funds are provided by the School Boards and a corporation.

3. The students are not employed by the School Boards or the corporation and are not required to reimburse them for any of the funds received.

You request our confirmation that the funds received by the students should not be included in computing their incomes under paragraph 6(1)(a), section 56 or any other provision of the Act.

Our comments are as follows:

(1) Paragraph 6(1)(a) of the Act refers to a benefit received by a taxpayer by virtue of his office or employment. Since the students are not employed by the School boards or the corporation that paragraph will not apply.

(2) In accordance with Interpretation Bulletin IT-75R2 it is our view that amounts paid by the School Boards and the corporation for personal expenses, course fees, etc. to enable students to pursue their education would be considered as scholarships or bursaries for the purposes of paragraph 56(1)(n) of the Act.

(3) Similarly, if the amounts can be considered to be allowances provided by a government authority for adult occupational training, such amounts also would be considered as scholarships or bursaries under paragraph 56(l)(n) of the Act.

(4) In the cases described in (2) and (3) the amounts paid to, or on behalf of, a student would be included in computing his income.

Our understanding of the third situation is as follows:

1. Under their Union contract teachers from the South who are employed by the School Boards and stationed in the North are given three vacation trips annually to the South.

2. During their flights to the South or North the teachers may incur expenses for hotel rooms, meals and taxi fares at a particular location where connecting flights do not leave that location until the next day.

You wish us to confirm that travel assistance other than the air fare given to the teachers for expenses at the particular location will be exempt from tax under section 110.7 of the Act.

Our comments in respect of this situation are as follows:

(1) Subparagraph 110.7(l)(d)(ii) of the Act states that " there may be deducted ... an amount ... in respect of travelling expenses ... that ... does not exceed a prescribed amount ...". In this regard Release No. 86-211 issued by the Department of Finance provides that the extent of the deduction would be limited to the least of three amounts and in any event would not exceed the lowest return air fare between the isolated post and nearest designated city.

(2) Hotel expenses, meals and taxi fares, in certain circumstances, may be considered as "travelling expenses". This would apply with respect to a stay in one place for a short period in which a taxpayer may be considered to be still in travel status and would include, in our opinion, the period and the circumstances that you described. However, it is our view that the amount of any travel assistance together with the air fare provided to the teachers may not exceed the lesser of the actual travel expenses incurred and the lowest return air fare, determined in the manner described above.

We trust that our comments will be helpful to you.

Yours truly,

for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch