Subsection 110.7(1) - Residing in prescribed zone
Talbot v. The Queen, 2018 TCC 94 (Informal Procedure)
The taxpayer worked for Canadian Royalties Inc. in a remote area of Quebec, that was a prescribed northern zone, where he operated a crusher. He followed a regular pattern of working in the northern zone for 22 consecutive work days, followed by 20 days off. At the end of each work period, he would leave the work site, and return to his residence in the City of Quebec.
In finding that the taxpayer did not qualify for relief under s.110.7, Fournier J. stated (at paras. 15-16):
In this case, unlike the taxpayer in Morecroft, the Appellant’s employer provided him with meals and a room, which he had to vacate for his replacement when he left the work site during his time off. That was when he would return to his ordinary residence in the City of Québec. Every time he left the work site, he had to bring his personal belongings with him, because he no longer had a place to store them. At no time did he have a self-contained domestic establishment in a prescribed zone. …
The most that can be said is that he intermittently stayed at the work site and did not even have the means of establishing a “residence” within the meaning of section 110.7 of the Act, even though that was his intention.
B Morecroft v. MNR, 91 DTC 937,  2 CTC 2265 (TCC)
The taxpayer, who ate and slept at a trailer near his worksite in the Carmanah Valley on Vancouver Island was found to "reside" there "throughout" a period of more than six months notwithstanding the occasional visit to his wife and three children in Nanaimo, B.C. "To reside anywhere does not require the constant and uninterrupted presence by a person in a particular area" (p. 939).
The correspondent expressed concern that the Magdalen Islands are part of a prescribed "intermediate zone" and not a prescribed "northern zone," so that the percentage applicable to deductions, in particular the deduction for a residence, is fixed at 50% instead of 100%. CRA confirmed this result, and also stated:
1- As the Magdalen Islands were a "prescribed zone" for the taxation years 1988 to 1994;
2- If the individual met all the conditions for the application of section 110.7; and
3- Since the Magdalen Islands have been an "intermediate zone" since the 1988 taxation year;
the "specified percentage" for deductions for residents of prescribed zones would be:
- 100% for taxation years between 1988 and 1992;
- 66 2/3 % for the 1993 taxation year; and
- 50% for the 1994 and subsequent taxation years.
A travel allowance in a new employment contract will be calculated as a fixed and identified amount per hour worked (i.e., XX% of the total hourly compensation amount). The total hourly compensation (i.e., the sum of the wage amount and the travel allowance) will be the same as under the old contract. CRA stated:
[T]here must be a connection between the actual travel expenses incurred by a taxpayer or a member of the taxpayer's household and the amounts paid by the taxpayer's employer to defray those costs, in order for the amounts to be "...in respect of travel expenses incurred by the taxpayer..." under paragraph 110.7(1)(a)… . CRA accepts that an employer can pay a reasonable travel allowance before a trip, such as a reasonable "per hour" or "annual premium", provided the details of such an allowance are specified in the employment contract. …
[A] travel allowance provided for in a an arm's length new contract would not be considered a re-characterization of an existing salary…where:
- the old contract has legally ended;
- the legal rights and obligations under the new contract designate (on a prospective basis) a portion of an employee's hourly compensation as a travel allowance; …
- the travel allowance is accounted for separately in the payroll system and on the employee's pay stub; and
- the terms of the new contract are reflected in the collective agreement (where the employee is represented by a union).
After summarizing s. 110.7(1), CRA stated:
Pursuant to subsection 110.7(4), where a taxpayer receives an allowance for a taxation year that is excluded from computing income pursuant to subparagraph 6(6)(a)(i), that allowance reduces the amount of the deduction otherwise calculated for the year under paragraph 110.7(1)(b).
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The taxpayer works at a worksite located in prescribed zone. In accordance with the contract of employment, the taxpayer returns to the taxpayer’s principal residence outside the zone every 35 days for a period of 8 days including travel. Does the qualifying period referred to in s. 110.7(1)(b)(ii) apply to all the days stated in the contract of employment or only the accumulation of the 35-day periods? CRA responded:
[T]emporary absences from the place of residence in the prescribed northern or intermediate zone may constitute an interruption in the continuity of the period of residence. However, those temporary absences will not constitute a break in the continuity of the period of residence if they are of short duration and if they are not frequent. …
[I]n the situation you described, an individual who resides in a prescribed northern or intermediate zone for a period of at least six months and who has a 35-day work cycle in the said zone followed by an 8-day leave in his other residence at XXXXXXXXXX would be entitled to the deduction provided for in section 110.7.
The taxpayer, who maintained throughout a residence in Ontario at which his wife and son (both dependants) lived, commenced for over six months to work in a prescribed zone in Quebec where he lived in employer-provided accommodation. However, during this period, travelled to his residence in Ontario for various extended leaves. His travel expenses were reimbursed. In finding that the taxpayer was not entitled to the s. 110.7(1) deduction, CRA stated:
In general terms, absence from a prescribed zone does not automatically change the period of residence in that zone if the taxpayer lives there permanently. …
[However, where] individuals … live in a prescribed zone and maintain a self-contained domestic establishment for themselves or any other dependents in a non-prescribed zone … the absences of those individuals from the prescribed zone result in a break in the continuity of residence in the area. Thus, for those individuals … the principal place of residence is not in such a prescribed zone.
2 April 1990 Memorandum (September 1990 Access Letter, ¶1406)
Discussion of the concept of residence for purposes of s. 110.7(1). The word "months" means "calendar months" by virtue of s. 35(1) of the Interpretation Act.
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14 July 1989 Inter-Divisional Memorandum (Dec. 89 Access Letter, ¶1054)
Even though an individual may be physically absent from the prescribed area while on overseas assignment, he should still be considered as a resident of the prescribed area if that remains the centre of his vital interests, in which case if he claims the overseas employment tax credit, he may also be entitled to the northern resident deduction.
An individual employed at a s. 6(6)(a)(i) special (intermediate zone) work site located well away from any population centre receives a daily allowance for board and lodging. In agreeing with the proposition posed that “only allowances received for board and lodging in respect of a special work site under subparagraph 6(6)(a)(i)… within 30 kilometers of a population centre of at least 40,000 persons reduce the amount of the deduction under paragraph 110.7(1)(b),” CRA stated:
The wording of subsection 110.7(4)… specifically states "other than at a work site described in paragraph 67.1(2)(e)…. This statement confirms that subsection 110.7(4) refers only to special work sites referred to in subparagraph 6(6)(a)(i)… that are within 30 kilometers of a population centre of at least 40,000 people.
The wording of Form T2222 would be clarified in this regard.