27 September 2002 External T.I. 2002-0145415 - EMPLOYMENT EXPENSES

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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues: Whether various employment related expenses may be deducted by forestry workers, particularly travel expenses.

Position: Not deductible unless specifically provided for under section 8. Expenses incurred while travelling in the course of employment may be deducted, subject to the conditions in 8(1)(h), 8(1)(h.1), and 8(4) of the Act.

Reasons: Pursuant to subsection 8(2) of the Act, employment related deductions are only allowed in specifically provided situations. Forestry workers may be considered to travel away from their employer's place of business or in different places in certain circumstances.

XXXXXXXXXX 2002-014541

P. Massicotte, CA, M.Fisc.

September 27, 2002

Dear XXXXXXXXXX:

Re: Employment Expenses of Forestry Workers

We are writing in response to your letter of March 14, 2001, wherein you requested we consider your submissions in respect of the deductibility of employment expenses incurred by workers engaged in forestry operations under the Income Tax Act (the "Act"). We apologize for the delay in replying to your letter.

In your letter, you describe the working conditions of various groups of employees and state that you have been receiving conflicting information as to the interpretation of the provisions of the Act that allow employment related deductions in the situations described. You submit on behalf of the XXXXXXXXXX that various expenses incurred by forestry workers, particularly travel expenses, should be deductible as their working conditions are similar to those of railway workers, employees of transportation companies or salespersons.

Our Comments

Written confirmation of the tax implications arising from proposed transactions is given by this Directorate only where the transactions are the subject matter of an advance income tax ruling request pursuant to Information Circular 70-6R5. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office.

Please note that the Canada Customs and Revenue Agency (CCRA) is responsible for administering the Act as adopted by Parliament and strives to carry out this goal fairly and uniformly for all taxpayers. Pursuant to subsection 8(2) of the Act, no deduction may be made in computing a taxpayer's income from employment except those that are specifically provided by section 8 of the Act. In addition, as you are aware, subsection 8(10) of the Act requires that the employer certify that the conditions for claiming certain deductions were met by the employee. We are prepared to provide you with the following general comments which may be of assistance.

1. Cost of equipment

You suggest the capital cost of power saws be allowed a deduction in computing income from employment, including brush saws.

While no provision of the Act allows an employee to claim a deduction in respect of capital cost allowance on power saws, the CCRA's research has indicated that such saws have a very short life and therefore has taken the position that power saws may be considered supplies for the purpose of subparagraph 8(1)(i)(iii) of the Act. As a result, forestry workers are generally allowed a deduction for the actual cost of such saws purchased in the year in addition to the related operating expenses (see paragraph 3 of Information Circular 74-6R2 enclosed for your convenience). This position also applies to tree trimmers.

2. Travel expenses

You mention that employers in forestry operations may set up remote forest camps where employees would be based while working on different cutting sites. Our understanding of a remote forest camp involves a place where the employees report to obtain their work instructions or assignments, prepare administrative reports, eat and sleep. Alternatively, where no forest camp is established, employees travel daily to the cutting sites from their home. It is our understanding that the employees are responsible for their travel expenses to get to a forest camp and from the forest camp to the cutting site, or directly to the cutting site assigned, as the case may be.

Under certain conditions, paragraphs 8(1)(h) and 8(1)(h.1) of the Act allow a deduction for amounts expended for travelling in the course of employment. One of the requirements of these provisions is that the employee must have been ordinarily required to carry on the duties of employment away from the employer's place of business or in different places.

In determining whether amounts have been expended for travelling in the course of employment, it is generally our position that the cost of travelling between an employee's home and the place where he or she regularly reports for work is personal and cannot be considered incurred to travel in the course of employment.

Paragraph 32 of Interpretation Bulletin IT-522R generally discusses the CCRA's interpretation of the requirements found in paragraphs 8(1)(h) and 8(1)(h.1) of the Act. In addition to those comments, it may be added that for those purposes it is our view that a remote forest camp may constitute an employer's place of business in relation to an employee or a group of employees, based on the decision in the case of Lorne Nelson v. MNR, 81 DTC 190 (TRB). In this regard, the following comments of that decision are relevant (at p.192):

"It appears to be logical..., to consider that the "employer's place of business" as used in Section 8(1)(h)(i) of the Act, does not necessarily refer to the employer's head office or any of its administrative offices but refers specifically to that establishment of the employer for which the taxpayer was hired, to which he was assigned and at which he ordinarily reports for work. In other words, the "employer's place of business" should in my opinion be interpreted in relation to the taxpayer."

As a result, it is our opinion that in certain circumstances, forestry workers may be travelling away from their employer's place of business or in different places for the purposes of paragraph 8(1)(h) and 8(1)(h.1) of the Act. Where an employee regularly reports for work at a remote forest camp, the cost of travelling from the employee's home (permanent or temporary) to the remote camp is personal, as discussed above. Those costs are therefore not deductible.

However, we are of the view that travelling between a remote forest camp and various cutting sites is generally considered travelling in the course of employment, away from the employer's place of business or in different places, as required by paragraph 8(1)(h) and 8(1)(h.1) of the Act.

When the employer does not set up a remote forest camp and the forestry workers are required to travel directly from their home to the cutting site where the workers report regularly for work, the expenses paid for travelling to such site are considered personal and are not deductible. However, if the travelling takes place between the workers' home and a cutting site where they do not regularly report for work, the workers may deduct the expenses in connection with such travelling if they otherwise meet the conditions set out in paragraph 8(1)(h) or 8(1)(h.1) of the Act (see also the discussion below on Meals).

Whether a forestry worker regularly reports for work at a particular cutting site depends on the circumstances of each case. Even though an employee may change location on a daily or weekly basis, it will also be relevant to consider whether such employee reports for work at a particular location more than once throughout the same season. Where an employee reports to work at a particular site for an extended period of time, the employee will likely be considered to regularly report to work at such location. In addition, whether various locations are part of a single work site or constitute separate work sites will also depend on the facts of each case. However, it is our general view that two locations will not be considered part of a single work site where those locations are in different municipalities and have no common areas or common means of access.

3. Meals

Where forestry workers are travelling in the course of employment away from the municipality and metropolitan area where their employer's establishment to which they ordinarily report for work is located for a period of at least 12 hours, subsection 8(4) of the Act will not apply to disallow the deduction of the cost of meals consumed during that period. As discussed above, whether an employee can be considered to regularly report for work at any particular location is a question of fact. Paragraphs 55 to 57 of Interpretation Bulletin IT-522R provide additional information on the restrictions in subsection 8(4) of the Act.

4. Meals of transport employees

You suggest employees hired by a forestry company to transport harvested logs from the forest to paper mills of the company should be allowed a deduction for the cost of meals consumed while transporting those goods, pursuant to paragraph 8(1)(g) of the Act.

A particular requirement of that paragraph is that the taxpayer be employed by a person whose principal business was passenger, goods or passenger and goods transport. From the information submitted, it appears that the "principal business" of the transport drivers' employer is not the transportation of goods or passengers or any combination thereof. Several court decisions have considered this requirement and consistently held that what the paragraph contemplates is corporations and individuals whose principal business is what is generally regarded as that of transportation companies or enterprises such as commercial trucking, railroading, shipping and airlines (see the decisions in the case of Pepper v. MNR, 84 DTC 1613 (TCC) and Veskoukis v. The Queen, 95 DTC 327 (TCC)).

As a result, drivers that are employed by a forestry company solely to transport wood from the forest to paper mills cannot be allowed the deduction for meals pursuant to paragraph 8(1)(g) of the Act.

5. Board and lodging at remote forest camps

You recommend that the cost of board and lodging at forest camps be deductible for forestry workers who must remain there because of the remoteness of the area. Travel expenses are generally deductible only when incurred while travelling away from the employer's place of business or in different places, pursuant to paragraph 8(1)(h) of the Act (subject also to the restrictions of subsection 8(4) of the Act with respect to meals). As discussed above, where an employer sets up a remote forest camp, it would generally be considered to be one of the employer's places of business. The cost of board and lodging at such a remote camp would also not be considered travelling expenses incurred in the course of employment and would therefore not be deductible.

The Act generally recognizes these special circumstances through the provisions of subsection 6(6) which exclude from employment income any amount received or enjoyed in respect of board and lodging at a special or remote work site (see Interpretation Bulletin IT-91R4). The Act does not provide for any deduction in respect of costs incurred by employees for board and lodging at such work sites.

6. Safety clothing and gear

You mention in your representations that the cost of all safety and special clothing and gear in excess of amounts provided by the employer be deductible for forestry workers in computing their income from employment. However, you provide no reference to support such recommendation.

Subparagraph 8(1)(i)(iii) of the Act allows inter alia a deduction in computing income from employment for the cost of supplies that were consumed directly in the performance of the duties of the office or employment.

As mentioned in paragraph 10(c) of Interpretation Bulletin IT-352R2 (copy enclosed), the cost of supplies does not include the cost of special clothing worn by employees in the performance of their duties. This represents a longstanding position of the CCRA and has generally been supported by the courts (see the decision in the case of Luks v. MNR, 58 DTC 1194 (Ex. Ct.); Cuddie et al. v. The Queen, 98 DTC 1822 (TCC); Crawford v. The Queen, 2000 DTC 3583 (TCC)).

Therefore, in our view, the cost of such clothing and gear would not be deductible for forestry workers.

7. Accounting and tax preparation costs

You also suggest the cost of having any accounting and tax return prepared annually be considered eligible employment expenses for forestry workers. No reference is however provided to support such recommendation.

In our view, these costs are not deductible as no provision in the Act allows for such deductions in computing income from employment. CCRA's views with respect to the deductibility of fees for the preparation of personal income tax returns are generally outlined in paragraphs 6 to 8 of Interpretation Bulletin IT-99R5 (Consolidated).

Finally, please note that tax policy concerns, a number of which are raised in your letter, and amendments to the Act are the responsibility of the Department of Finance. Should you wish to pursue these concerns further, we suggest that you contact the Tax Policy Branch of the Department of Finance by writing to L'Esplanade Laurier, 140 O'Connor Street, Ottawa, Ontario, K1A 0G5.

We trust the above comments are of assistance to you.

Yours truly,

Milled Azzi, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate

- 6 -