6 June 2003 External T.I. 2003-0010865 - NORTHERN RESIDENCE DEDUCTION

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 an individual is entitled to a deduction pursuant to subsection 110.7(1) of the Act or entitled to a deduction for travel expenses when computing income from employment.

Position: Not entitled to subsection 110.7(1) deduction or claim any travel expenses.

Reasons: Did not reside in the prescribed zone for the "qualifying period" and did not incur travel expenses in excess of amounts paid by the employer.

A. Seidel
XXXXXXXXXX (613) 957-2058
2003-001086
June 6, 2003

Dear XXXXXXXXXX:

Re: Northern Resident Deduction

We are writing in response to your letter dated March 19, 2003, wherein you requested our comments clarifying when an employee is entitled to a deduction pursuant to subsection 110.7(1) of the Income Tax Act (the "Act") and when an employee is entitled to deduct travel expenses in computing income from employment.

You describe a situation where an employee works at a work camp in a prescribed northern zone for 21 days and then returns to his/her principal place of residence for seven days. The employer pays for all board and lodging expenses at the work camp and all travel expenses to and from the work camp.

The particular circumstances in your letter on which you have asked for our views relate to a factual situation involving a specific taxpayer. As explained in Information Circular 70-6R5, it is not this Directorate's practice to comment on transactions involving specific taxpayers other than in the form of an advance income tax ruling. To the extent that you require confirmation of the tax consequences of proposed transactions involving this specific type of arrangement, you should be requesting an advance income tax ruling. However, we would point out that advance income tax rulings are not provided in respect of transactions that are substantially completed. The tax consequences applicable to completed transactions can only be determined after a review of all of the facts and documentation related to a specific situation. This review is the responsibility of the Verification and Enforcement Division of the local tax services office.

Although we cannot provide any specific comments with respect to the situation described in your letter, the following general comments may be of assistance.

Subsection 110.7 (1) of the Act provides an individual with a deduction, for residing in a prescribed northern zone, when the individual resides there "throughout a period ... of not less than 6 consecutive months beginning or ending in a taxation year". Whether or not an individual, that does not reside in a prescribed northern zone, would be entitled to a deduction pursuant to subsection 110.7(1) of the Act for the period when, by virtue of their employment, they reside in a work camp in a prescribed northern zone, can only be determined after a review of all of the relevant facts and agreements applicable to a particular situation. In general, where an employee works at a work camp in a prescribed northern zone in three week periods and returns to his/her principal place of residence outside of a prescribed northern zone for one week after each three week period, it is our view that such an individual does not reside in a prescribed northern zone for a period that is "not less than 6 consecutive months". Accordingly, such an individual would not be entitled to the deduction, in computing income for a taxation year, provided under subsection 110.7(1) of the Act.

Subject to the conditions enumerated therein, subsection 6(6) of the Act provides that "in computing the income of a taxpayer for a taxation year from an office or employment, there shall not be included any amount received or enjoyed by the taxpayer in respect of, in the course or by virtue of the office or employment that is the value of, or an allowance (not in excess of a reasonable amount) in respect of expenses the taxpayer has incurred for" board and lodging and transportation at a special work site or a remote work location.

Interpretation Bulletin IT-91R4 ("IT-91R4") discusses the conditions that must be satisfied for the "special work site" or "remote work location" exclusions in subsection 6(6) of the Act to apply to employer paid board and lodging expenses and/or travel expenses. Paragraphs 4 through 9 of IT-91R4 discuss the conditions that must be met to ensure that benefits enjoyed by an employee in respect of board and lodging at a special work site satisfy the special work site exclusion in subsection 6(6) of the Act and paragraph 10 of IT-91R4 discusses the exclusion for transportation to and from a special work site. As noted in paragraph 11 of IT-91R4, where the requirements for the special work site exclusion are met, the employee and the employer should complete Form TD4, Declaration of Exemption - Employment at Special Work Site, so that the relevant benefit can be excluded from the employee's income.

Paragraphs 12 through 17 of IT-91R4 discuss the conditions that must be met to ensure that benefits enjoyed by an employee in respect of board and lodging at a special work site satisfy the remote work location exclusion in subsection 6(6) of the Act and paragraph 18 of IT-91R4 discusses the exclusion for transportation to and from a remote work location.

IT-91R4 may be obtained from your local tax services office or from our Internet web site (www.ccra-adrc.gc.ca).

Yours truly,

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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