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FEDERAL INCOME TAX - Employment income - Employee benefits - Allowances

Wednesday, June 24, 2020 @ 6:59 AM  

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Appeal by the Minister of National Revenue from a Tax Court decision that found allowances paid by the respondent to its employees were partially excluded from income. The respondent was a heavy equipment contracting company that paid wages and allowances to its employees. The Minister determined the allowances paid to five employees were pensionable and insurable earnings. It assessed the respondent for Canada Pension Plan contributions and Employment Insurance premiums not deducted and remitted with respect to the allowances. The Tax Court found the allowances were travel allowances and that a reasonable portion of those allowances was excluded from income.

HELD: Appeal allowed. The Tax Court erred in law in its interpretation of s. 6(1)(b)(vii) of the Income Tax Act and erred by failing to consider the reasonableness of the allowances actually paid to the employees. Under s.  6(1)(b)(vii) of the Act, allowances that were unreasonable were intended to be included in their entirety in the computation of income. If the reasonable portion of an unreasonable travel allowance paid under s. 6(1)(b) could be excluded from income, as the Tax Court did, the purpose of s. 8(1)(h)(iii) of the Act would be defeated. Construing the exception to apply only to allowances that were reasonable did not defeat, and in fact furthered, the purpose of s. 6(1)(b).

Canada (Minister of National Revenue - M.N.R.) v. Al Saunders Contracting & Consulting Inc., [2020] F.C.J. No. 616, Federal Court of Appeal, E.R. Dawson, D.J. Rennie and G.R. Locke JJ.A., May 15, 2020. Digest No. TLD-June222020006