✔ What is a reasonable rate?
✔ What criteria must be met?
✔ What if the allowance is not reasonable?
✔ How do you handle contractor LOAs?
Living out allowances for accommodation, meals and incidentals can be paid to employees and/or contractors provided certain criteria and paperwork are kept. Today we'll chat about the details.
On the CRA website, take a look at board, lodging, and transportation at special work sites. It list the conditions that must be met for an allowance.
Income Tax Interpretation Bulletin IT-91R4 Employment at Special Work Sites or Remote Work Locations has an overview and chart(s) for the requirements that must be met. This is an archived bulletin so you may want to download for future reference.
A December 2009 article about living out expenses by JA Smith & Associates Inc., CGA discusses:
The JA Smith article explains that "the Income Tax Act and the Excise Tax Act do not prescribe a reasonable allowance amount". The article goes on to state that "Canada Revenue Agency’s administrative position appears to be that the Treasury Board of Canada allowance rates are the upper limit for allowances".
Board rates can be found on the National Joint Council website
Appendix C, which is located at
current rates effective October 1, 2013 for the first thirty-one days
You can find the meal allowances broken down by meal on the chart. Allowances in the USA are the same as Canada but in USD. You will also find weekend travel home allowances.
The amounts are different once you have stayed 31 consecutive calendar days.
Just as a point of reference, CRA non-business simplified meal rate is a flat rate of $17 per meal or $51 per day.
Of course if you can show that another amount would be "reasonable" based on the area, it would be reasonable to use that rate ... but be prepared (have paperwork and examples to show how you determined the rate was reasonable) to defend your position if you are audited.
I found a blog post dedicated to trucking that may also be of interest to you. You can find the blog titled Canada Truck Operators at thrconsulting.blogspot.com. The January 26, 2009 post on Employer Employee Agreements is worth reading.
In another post - January 22, 2009 - Robert Scheper explains that a subsistence allowance (living out allowance) has three steps to qualify:
1. You must be an employee, therefore an owner operated business must be incorporated.
2. You must have a written employee-employee agreement and it must be reasonable [which CRA currently defines as the National Joint Council rates (formerly Treasury Board rates) as noted earlier in this chat].
3. Lastly, he stresses that the agreement must be followed.
In his other posts, he stresses this system is NOT for truckers who are paperwork sloppy ... he calls them slackers.
JA Smith's article spells out clearly that "records have to be kept showing the breakdown of meals expense because deduction of the allowance amount is limited to 50% of the meals portion for both income tax and GST, while 100% of the incidental and accommodation portion can be deducted. No receipts need to be provided by the employee, unless the employee is staying at a commercial establishment and is being reimbursed for the actual amount paid".
The JA Smith article says a living out allowance is still a deductible business expense even it is does not meet CRA's position of reasonable as "as long as a taxable benefit for the excessive allowance has been included on the employee’s T4 slip".
The business that provides a contractor living out allowance records the transactions the same way as they do their employees. However, it is very important that prior to payout, the business receives a separate invoice from the contractor for the living out allowance that clearly states the meal amounts.
While the business owner still only gets to deduct 50% of the meal amount for income and sales tax purposes, the contractor will be allowed a 100% deduction on meals that are billed out.
No. It is one or the other, not both.
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