Living Out Allowance | Business Travel Rates

by L. Kenway BComm CPB Retired

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 lists 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 (no longer available) about living out expenses by JA Smith & Associates Inc., CPA CGA (merged with Smyth CPA LLP in November 2105) discussed:

1. the meaning of "reasonable" employee allowances;
2. the necessity to have records showing the breakdown of meal expenses, incidental expenses and accommodation expenses; and
   
3. the differences between employee allowances and contractor allowances.
   

What is CRA's Position on a Reasonable Rate?

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".

Treasury Board rates can be found on the National Joint Council website Appendix C, which is located at http://www.njc-cnm.gc.ca/directive/travel-voyage/s-td-dv-a3-eng.php.The current rates effective October 1, 2013 for the first thirty-one days away are:

• $50.00 for private non-commercial accommodation allowance
• $85.20 (100%) daily total for meals ($72.85) and incidentals (17.30); the amount is higher in the territories

The meal allowances are broken down by meal on the chart. As of October 1, 2013, they are $15.75 for breakfast, $15.10 for lunch, $42 for supper.  Allowances in the USA are the same as Canada but in USD. You will also find weekend travel home allowances.

The rates are reduced to 75% once you have stayed 30 consecutive calendar days.

Just as a point of reference, CRA non-business simplified meal rates 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.

Sophie Duncan CA of KWB also has a good article on living out allowances discussing the definition of "reasonable allowance" titled "In certain situations, a company can deduct a living out allowance and the employee does not have to report the allowance in their income." - See more at: www.kwbllp.com/living-out-allowance/#sthash.UCIVG8yX.dpuf

Living Out Allowance Criteria

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".

What if the Allowance is Not Reasonable?

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".

How to Account for Employee Living Out Expenses

The JA Smith article stated, "For income tax and GST purposes, when an employer reimburses an employee for expenses incurred in performing their job, the reimbursement is not income to the employee and is treated as if the employer had incurred the expense directly. This includes paying an employee a “reasonable” allowance for expenses at a special work site or remote work site. This is often called a living out allowance. [...] Although the allowance can be paid as a single per diem amount, 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.

Sophie Duncan's article goes into detail about the criteria that must be met by employees at a special work site before you can exclude the value of board and lodging.

Contractor Allowances

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.

Sophie Duncan has additional information on this in her KWB article.

Can a Business Claim the Living Out Allowance and the Actual Expenses?

No. It is one or the other, not both.

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