2015-0608281E5 reasonable allowance for travel

Principal Issues: Whether an allowance in excess of $51/day is reasonable?

Position: Question of fact

Reasons: See response

Author: Ryer, Andrea
Section: 6(1)(b)(vii)

XXXXXXXXXX                                2015-060828
                                                        A. Ryer

January 4, 2016

Dear XXXXXXXXXX:

Re: Meal allowance in excess of $51 per day

We are writing in response to your enquiry dated August 7, 2015, concerning the reasonableness of a meal allowance in excess of $51 per day paid to certain employees travelling outside Canada in performance of their duties. You asked whether the higher cost of meals in the area to which the employees are travelling and the unfavourable exchange rate would justify paying an allowance in excess of $51 per day.

Our Comments

This technical interpretation provides general comments about the provisions of the Income Tax Act (Act) and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of a particular transaction proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R6, Advance Income Tax Rulings and Technical Interpretations.

Paragraph 6(1)(b) of the Act requires that all amounts received by an employee as an allowance for personal or living expenses be included in his or her income as income from employment. However, there are a number of exceptions to this general rule. In particular, subparagraph 6(1)(b)(vii) of the Act specifically excludes from income reasonable travel allowances, namely all reasonable amounts received by an employee from the employer for travelling away from the municipality (and the metropolitan area, if there was one) where the employer’s establishment, at which the employee ordinary worked, was located.

The Act does not define reasonableness for the purposes of subparagraph 6(1)(b)(vii). The reasonableness of a travel allowance (in this case, an allowance for meals) is always a question of fact to be considered in light of all the relevant circumstances. Although the Canada Revenue Agency (CRA) will generally accept $17 (including taxes) per meal as a reasonable allowance, it will also consider a higher amount to be reasonable where the allowance is designed to cover the out-of-pocket expenses an employee could be expected to incur for meals while travelling for work. Relevant factors to consider in determining if a travel allowance is reasonable for the purposes of subparagraph 6(1)(b)(vii) may include:

*     the average cost of ordinary meals in the area to which the employee is travelling;

*     the availability of meals in the proximity of the location where the employee is working or lodging while away;

*     whether the employee is likely to have some meals provided to him or her at no cost;

*     the amounts paid to Canadian federal government employees travelling on government business (see the appendices to the National Joint Council’s Travel Directive, available at www.njc-cnm.gc.ca/directive); and

*     the exchange rate (if the employee is travelling outside of Canada).

Consistent with comments in paragraph 41 of Interpretation Bulletin IT-522R, Vehicle, Travel and Sales Expenses of Employees, where the CRA considers an allowance to be unusually high (e.g., higher than the National Joint Council rates), the employer should ensure that receipts, vouchers or other acceptable evidence are available to show that the allowance is not in excess of a reasonable amount.

We trust that these comments will be of assistance to you.

Sincerely,

Nerill Thomas-Wilkinson, CPA, CA
Manager
Business and Employment Income Section
Business and Employment Division
Income Tax Rulings Directorate

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