Urban workers often spend a great deal of time and money commuting to and
from work. In fact, it's not unheard of for many Greater Toronto Area workers to
commute an hour or more each way to get to their Bay Street jobs. But what if
your employer agreed to reimburse you for the cost of a hotel during the week so
as to reduce your commute and maximize your productivity in the office -- would
such a reimbursement be taxable? What if your employer also paid for your costs
A tax case heard last month dealt with both of these issues. The case
involved Brian Burton, who was both the owner and general manager of Smith Steel
& Fabrication Inc. in Atwood, Ont.
Mr. Burton lived in Oakville, Ont. and his job at Smith Steel in Atwood was
144 kilometers away. To avoid the daily commute, Mr. Burton decided to stay at a
local bed and breakfast near Smith Steel for two nights each week. The cost of
the B & B stays was just over $2,500 in 2000 and $1,675 in 2001.
Under the Income Tax Act, meals and lodging are typically personal expenses
and any reimbursement received by an employee from his or her employer would
generally be considered a taxable benefit to the employee, subject to some
exceptions. One of these exceptions is the rule for "special work sites."
For this exception to apply, the work place must be a location at which the
duties performed by the taxpayer are of a "temporary nature." According to the
Canada Revenue Agency's interpretation bulletin, the meaning of "temporary"
refers to "duties lasting no more than 24 months."
Mr. Burton argued that it was always his intention for his investment in
Smith Steel to be temporary -- "about 18 months" -- and therefore his duties as
the general manager at the company in Atwood were also "temporary."
Unfortunately, the judge disagreed with Mr. Burton's definition of
"temporary," finding that he did not clearly establish that his duties in Atwood
were temporary. As the judge wrote, "although Mr. Burton may have initially
thought that Smith Steel would be sold within a few years, that would be a
business decision that would be made later and that would presumably depend on
several things, including whether a suitable buyer could be found."
Smith Steel also paid Mr. Burton a per-kilometre car allowance of over
$11,000 to compensate him for his drives between Oakville and Atwood. The CRA
included those amounts in Mr. Burton's income contending that the trips between
Oakville and Atwood were personal in nature and that the reimbursement of these
expenses should be included in income as a taxable benefit.
This is consistent with the CRA's longstanding administrative policy that
travel between work and home is a personal activity and that any reimbursement
by an employer of such travel costs must be included in the employee's income as
a taxable benefit.
Mr. Burton again objected saying that the reimbursement should be exempt from
tax since his vehicle was used "in connection with employment." Again, the judge
disagreed. The phrase "in connection with employment" generally refers not to
driving to and from work but rather to work-related travel, such as visiting
clients, prospects or suppliers.
Both the value of the lodging as well as the reimbursement of Mr. Burton's
driving expenses were found to be fully taxable and he was reassessed
MORE ON MEALS
Last week I wrote about self-employed real estate agent Mark Stapley who
successfully fought a Canada Revenue Agency reassessment disallowing 50% of his
deductions for entertainment and meals Mr. Stapley purchased as gifts for his
The taxman, apparently not satisfied with the tax court's finding that Mr.
Stapley's purchase of food vouchers or entertainment tickets was fully tax
deductible, has appealed the decision to the federal court.
In the lower court, Mr. Stapley successfully argued that since he did not
actually personally consume any food nor attend any entertainment with his
clients but rather gave his clients vouchers or tickets, they were a form of
"discount" and thus fully tax deductible.
In its notice of appeal filed in court, the CRA claimed that it was
irrelevant that Mr. Stapley was not present when the meals were consumed.
Secondly, the CRA felt that gifts of food vouchers should indeed be included in
the broad wording of the limitation in the tax act: "in respect of...food."
No hearing date has yet been set for the appeal.
Colour Photo: Kevin Van Paassen, National Post; Commuting to work is considered
a personal expense.