Words and Phrases - "allowance"
A trucking company pays its employed long-haul drivers allowances for accommodation expenses of $0.04 per kilometer (scenarios 1 and 3) or of $75 per day spent away (scenario 2). (In scenario 3, they also receive wages of $0.36 per kilometre.) The employees each sleep in the truck’s cab as a security measure, so that no expenses are generally incurred by them for accommodation – but their meal expenses, amounting to around $40 per day, are approximately twice the allowance amounts in scenarios 1 and 3 based inter alia on assumptions as to the number of kilometres travelled. Would the allowances received be considered as reasonable and, therefore, excluded from employment income under s. 6(1)(b)(vii)? CRA responded:
[T]ravel expenses include food, beverage and accommodation costs. In addition… the costs of showers are also considered to be deductible as accommodation expenses where a transport employee sleeps in the cab of the truck rather than in a hotel. …
[A]n allowance for accommodation expenses calculated exclusively on the basis of distance, time or other criteria will not be considered reasonable if it does not represent an estimate of the cost of accommodation that may be incurred by the employee during the travel that generated entitlement to the allowance. …
[W]here an employee sleeps in the truck cab, it is unlikely that the allowances for accommodation expenses in the three scenarios provided will be considered reasonable for the purposes of paragraph 6(1)(b).
Meaning of allowance
2.56 An allowance or an advance is any periodic or lump-sum payment that an employee receives without having to account for its use. An allowance or advance is:
- usually an arbitrary amount that is predetermined without using the actual cost;
- usually for a specific purpose; and
- used as the employee chooses, since the employee does not provide receipts.
Employees, who are required to use cell phones in the performance of their duties and to have their cell phone contracts approved by the employer, but bear the monthly costs of the contracts personally. However, the employer pays each a fixed amount based on the particular requirements of each employee not in excess of their costs. The employees do not systematically provide copies of their invoices, but are required to retain them for possible future inspection. CRA stated (TaxInterpretations translation):
Given that you do not require detailed receipts…the monthly payments to your employees for using their personal cell phones required in the performance of their employment do not constitute a reimbursement of expenses. …[T]he monthly payment constitutes an allowance. Consequently, the monthly payment must be included in computing the income of the employee… .
The Queen v. Côté, 99 DTC 5788, 1999 CanLII 8469 (FC) (FCTD)
The taxpayer, who was a senior Quebec civil servant, was taxable on a lump sum equal to four weeks' salary that compensated him for expenses of a compulsory move from Quebec City to Montreal given that the amount qualified as an allowance (i.e., a limited and predetermined amount that was paid to cover personal expenses in lieu of reimbursement and for which there was no obligation to account).
The appellants were required to relocate their employees to different locations as part of their business. In addition to reimbursing direct moving costs, their relocation policy entailed paying the relocated employees a moving allowance in respect of incidental expenses (e.g., draperies, blinds and carpeting for the new premises, costs of cancelling and entering into new service contracts and the replacement of items which could not be shipped.) The appellants claimed ITCs in respect of the moving allowances on the basis of s. 174.
The Court found that, under s. 174(a)(iv), it is the supply, not the allowance used to acquire it, that must be "in relation" to the employer's activities. Noël J.A. stated (at para. 50):
If meaning is to be given to the words of subparagraph 174(a)(iv), regard must be had to the particular property or services contemplated and their intended use. Applying these criteria, property or services which are intended by the employer for the exclusive personal use of the employees and which lend themselves to such a use bear no relationship to the employer's activities. In contrast, property or services which can be used by the employees in the course of their employment activities, and which are intended for such a use, are in relation to the employer's activities.
Accordingly, as the "supplies of property or services which the allowances were intended to fund...were for the exclusive personal use of the employees" (para. 52), they did not qualify under s. 174.
Noël JA further noted obiter (at para. 54-55) that, as s. 174 deals with an "allowance," i.e., an amount for which the recipient "is under no duty to account and remains free to use...as he or she pleases," by legislative design there is no requirement for the payor of the allowance to assess the reasonability of the actual consumption or use of the property by the recipient of the allowance as would be required for a reimbursement referred to in s. 170(2)(a) and "that is why the test under paragraph 174(b) of the ETA is framed by reference to the reasonability of the allowance as a deductible expense in the hands of the employer."
P-075R, 6 July 2004 "Allowances and Reimbursements"
In contrast [to an allowance], a reimbursememt is a payment made by one person to repay another person for amounts spent. An amount constitutes a reimbursement where the amount is fully accounted for by the person receiving the payment (i.e., evidenced by supporting vouchers or records).