27 January 2009 External T.I. 2008-0296431E5 - Remote Work Locations

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.

Principal Issues: Taxability/reasonableness of transportation allowances and motor vehicle allowances received by employees possibly working at a remote work location.

Position: General comments only.

Reasons: Involve several questions of fact.

XXXXXXXXXX  							Michael Cooke
									2008-029643
January 27, 2009

Dear XXXXXXXXXX :

Re: Transportation and Motor Vehicle Allowances - Remote Work Locations

We are writing in response to your undated letter that we received on October 14, 2008, wherein you asked about the taxability of employee transportation and motor vehicle allowances in the situation described below.

In your letter you indicate that your company (the "Employer") provides XXXXXXXXXX services in XXXXXXXXXX . You also indicate that some of the Employer's employees regularly perform their duties of employment in one or more work camps that are located approximately 70 to 100 kilometres or more from XXXXXXXXXX . The employees are required to use their own vehicles, typically half ton pick-up trucks, to travel between the employees' homes and the various work camps. Since the employees are required to be away from home for more than 36 hours at a time the Employer provides board and lodging at the work camps. Typically, an employee will work a XXXXXXXXXX hour shift each day and be on call for the remaining portion of the day in the event of an emergency.

For each day worked, each employee receives a transportation allowance of $27 to subsidize the overall cost of transportation between the employee's home and the particular work camp where the employee reports for work. The employees also receive a motor vehicle allowance of $0.70 per kilometre where the employee is required to use his own vehicle to drive between the various work camps. You indicate that the $0.70 per kilometre rate was selected in consideration of the following extenuating factors:

• the higher fuel costs in XXXXXXXXXX ;
• the additional wear and tear on the employee's personal vehicle due to the very rough condition of the roads; and
• during the winter months it is generally necessary to keep the vehicles running all day.

Since the situation outlined in your letter relates to a completed transaction involving specific taxpayers you should submit all relevant facts and documentation to the appropriate Tax Services Office ("TSO") for their consideration. A list of TSOs is available on the "Contact Us" page of the Canada Revenue Agency's ("CRA") website. However, we are prepared to offer the following comments.

Comments:

Certain allowances paid in respect of employment expenses are exempt from tax. You have requested our comments as to whether the allowances described above would be exempt on the basis that the work sites are "remote work locations." In order for a particular work location to qualify as a remote work location for the purposes of subsection 6(6) of the Income Tax Act (the "Act") the following requirements must be met:

1) the employee must have worked at a remote work location at which, by virtue of its remoteness from any established community, the employee could not reasonably be expected to have established and maintained a self-contained domestic establishment; and

2) the period during which the employee was required by his or her duties to be at the remote work location was at least 36 hours.

Since you have indicated that the employees are required to be at the work camps for at least 36 hours we will direct our comments to the requirements in 1 above as they may or may not apply to the fact situation described in your letter.

As noted above, one of the tests is whether the employee is unable to establish and maintain a "self-contained domestic establishment" (as that term is defined in subsection 248(1) of the Act) at the particular work location due to its remoteness from an established community. Paragraph 14 of Interpretation Bulletin IT-91R4, Employment at Special Work Sites or Remote Work Locations, indicates that for a particular work location to be considered to be remote from an established community, the following factors will be considered:

• the availability of transportation;
• the distance from an established community; and
• the time required to travel that distance.

As you are aware, the CRA generally accepts that a work location will be considered to be remote if the nearest established community with a population of 1,000 or more is no closer than 80 kilometres by the most direct route normally travelled in the particular circumstances. However, where the particular work location is less than 80 kilometres from an established community it may nonetheless be considered to be remote, depending on a review of relevant factors. Where the particular work location qualifies as a remote work location, paragraph 6(6)(b) of the Act will allow certain employer-paid or subsidized transportation costs, including an allowance (that is not in excess of a reasonable amount) to be excluded from an employee's income. This provision will only apply where the employee also receives board and lodging, or a reasonable allowance in respect of board and lodging for a period while the employee was working at a remote work location and the amount is in respect of transportation costs incurred by the employee for travel between the remote work location and a location anywhere in Canada or, in the case of an employee working at a remote work location in another country, a location in that country.

With respect to the travel allowance in the amount of $27 for each day worked, there appears to be no link or correlation between the amount paid and the transportation costs that are incurred by an employee for travel between the employee's home and the remote work location. For example, assume an employee worked for twenty days at a remote work location. Also assume that the employee returned to his or her home in XXXXXXXXXX at the end of that work period. If the employee only incurred $100 in actual transportation costs but received a $540 allowance (i.e. 20 days * $27 per day) it could be argued that the amount paid by the Employer is in excess of a reasonable amount. Alternatively, if that employee actually traveled to XXXXXXXXXX and that trip cost the employee $600, the amount paid would not appear to be in excess of a reasonable amount.

A motor vehicle allowance for work-related use of an employee's vehicle might be excluded from an employee's income by one of several subparagraphs in paragraph 6(1)(b) of the Act. It appears that the provision that would be most applicable would be subparagraph 6(1)(b)(vii.1) of the Act, which will exclude such an allowance from income provided the amount is reasonable. To determine if a motor vehicle allowance described in subparagraph 6(1)(b)(vii.1) of the Act is reasonable, various considerations arise. If the allowance is not based solely on the number of employment-related kilometres driven, subparagraph 6(1)(b)(x) of the Act will deem the allowance not to be reasonable. Similarly, under subparagraph 6(1)(b)(xi) of the Act, if the employee receives a per kilometre allowance in respect of the use of the motor vehicle but is also reimbursed in whole or in part for expenses in respect of that same use (other than for certain excepted expenses such as supplemental business insurance or toll or ferry charges) the motor vehicle allowance will be deemed not to be reasonable.

In connection to the above, and while a question of fact, for purposes of paragraph 6(1)(b) of the Act, the CRA will generally not challenge the reasonableness of a per kilometer motor vehicle allowance if it does not exceed the prescribed rates in section 7306 of the Income Tax Regulations. The rates for 2009 are 52 cents per kilometre for the first 5,000 kilometres and 46 cents per kilometre thereafter. In the Northwest Territories, Yukon, and Nunavut, there is an additional 4 cents per kilometre for travel. These rates can also be found on CRA's website. This is not to say that these are the only rates that will be considered reasonable. The considerations you raise may warrant an increase to the rate paid to employees who are in fact affected by all such factors. Since the determination of the various factual issues described above must be determined on a case by case basis by having regard to the particular circumstances, any further questions concerning this matter should be directed to your local TSO.

It should be noted that even if a motor vehicle allowance is found to be reasonable for employment benefit purposes, if such allowance actually exceeds the maximum prescribed rate for the particular region pursuant to paragraph 18(1)(r) of the Act the Employer will be unable to deduct the excess amount in computing its income unless the amount is included in the employee's income.

We trust the above comments are of assistance.

Renée Shields
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch