Travel allowances per diems must be taxed effective January 1, 2019

Effective January 1, 2019 all municipal allowances must be taxed. If the employee submits receipts for reimbursement for business expenses, they can be non-taxable. No receipt items include per diems, mileage and personal accommodations are taxable. How do you handle this change to your employees? Will you make change in policy or through communication?

Comments

  • We were just having a similar discussion on what to do. How different is it from the 1/3 council/board remuneration becoming taxable? Is anyone increasing their per diems to take the impact into consideration?

  • Right now our per diems run through AP. We will create a paycode in our payroll system for the per diem amount and allow people to enter their per diems rather than submit an expense claim. Haven't given a lot of thought yet to how this will be communicated - I expect a direction from the City Manager will suffice. I don't have a lot of interest in asking for receipts to reimburse on actual. I don't think our rates need to increase; they are rather generous as they are even if they are soon to be taxable.

  • There was some feeling that the municipal allowances becoming taxable applied to elected officials - and as long as your per diems were "reasonable" for staff, they would not become taxable benefits. Anyone run this by their auditors or have any comments around this?

  • CRA says up to $17 per meal is reasonable.
    https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/benefits-allowances/travel-allowance.html
    Then, if your amount is over the $51, it appears the entire amount may be taxable as it is considered to be an unreasonable amount. Of course, it would all depend if you could prove the amount reasonable to CRA - see example 2 in the link below
    https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/benefits-allowances/examples-travel-allowance.html

  • Most of us knew about the change for the elected official's 1/3 tax exemption going away. But, in 2017 federal budget, it also announced "Non-accountable allowance paid to municipal officers eliminated". There was not much information provided. So I've been contacted Canadian Payroll Association and they advised that effective January 1, 2019, all municipal allowances must be taxed. If the employee submits receipts for reimbursement for business expenses, they can be non-taxable. They interpreted municipal officers would be like employees. Now I wonder, are you making changes regarding per diems as taxable? Our per diems rate is $70 per day. We don't require employees to submit receipts therefore, it will be taxable benefit to our employees in 2019. Any thoughts?

  • We will probably get the employees to use the company purchasing card and submit receipts for meal and other expenses. Anyone who chooses to get a per diem (only for meals not covered by registration fees) will be paid through payroll as a taxable benefit. Is there a need to increase per diem rates if there is another choice and the staff could avoid the taxable benefit?

  • To us, per diem covers for meals only. What if, employees submit meal receipts for expense reimbursements then staff could avoid the taxable benefit. Otherwise, I don't see there is another choice.

  • Is there a difference between how we are to treat reimbursements for a Council member and an employee? Are we to record a taxable benefit for an employee and not a Council member when a Council member is being reimbursed? Our Council will be recording NON-reimbursed expenses and completing a T2200 for claiming but I'm unsure how to treat their reimbursed expenses.

    For most of our employees, they have company p-cards thus having to provide a receipt. They charge the meal to the p-card (with maximums in our policy). For those that don't have a p-card they use the per diem amount. None of the Councillors have a p-card - they all use the per diem amount. Do those (both Council and employees) that use the per diem now have a taxable benefit unless we change our policy to $17/meal or $51/day (matching the CRA rate)? Also if one uses the receipt method - do the same meal rates have to apply or could those be different from the CRA rate???

    We have one municipal vehicle therefore often those that are travelling (both employee and Council) use their own vehicle and therefore are reimbursed by mileage. Do those that use their own vehicle now have a taxable benefit unless we change our policy to match CRA's rate ($0.55 per km up to 5,000km; $0.49 thereafter).
    https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/benefits-allowances/automobile/automobile-motor-vehicle-allowances/automobile-allowance-rates.html

    I'm thinking to keep things simple that as long as our travel policy matches CRA's rates for both per diem and mileage we can continue to expense thru AP rather than processing the reimbursement as a taxable benefit. This would be for both Council members and employees. Also adding, if an employee or Council member provides a receipt for meals (to a maximum) then this would also go thru AP rather than as a taxable benefit.

    Would this be a correct application of CRA's travel allowance rules? I'm curious to know what others think of the 'different rate if per diem versus receipt' idea!!!?? Is it fair? reasonable? etc.?

    Karen Sharp, Village of Radium Hot Springs

  • Anything that is submitted with receipts is not taxable, I don't believe anything has changed in this regard. Unless I missed something.

    In terms of the allowances for Council, I think it is a little confusing. The allowance referred to in the legislation was the 1/3 portion of the remuneration that was previously deemed to be an "allowance" and previously was non taxable, is now becoming taxable.

    We have always paid a per diem to our staff and Council members for out of area travel requiring an overnight stay. We pay different rates, one for the OK Valley and one for outside the OK Valley. The rates are not what CRA has indicated that being $51/day but I would suggest that the rates are reasonable. I have been audited several times by CRA while working for a muni and the per diem never came up as an issue. Has something changed?

    We also pay the provincial government rate for mileage which is currently at .54/km and we do not deem this to be "taxable" as we feel it is reasonable. This again was something I have done with other muni's and was never questioned by a CRA during audit.

    Rose Bronswyk Kassa, CPA, CMA

  • Here is where I am leaning - unless our auditor tells me differently.

    Council - Obviously we are eliminating their 1/3 tax free, all remuneration becomes taxable. How our Council chose to deal with that is in another thread! Per diems will be taxable and paid thru payroll. I am not interested in reimbursing based on actual receipts for Council. We will increase their per diems to account for this.

    Staff - no change, paid per diem thru AP, not a taxable benefit. As posters mentioned above, the provincial government rate for mileage. I would agree with Rose and argue our per diem rates are reasonable, albeit higher than the $51 per day. Good luck eating anything other than McDonalds or Dairy queen for every meal for $51 per day in Whistler.

  • Thanks Tanya, I am in agreement with the employee part for sure as I can't find anything that says this is changing.

    _* This is the CRA guide reference that says If they are received by the employee for travelling away from the muni and metro area where the employer is located, it is NOT taxable.

    One step further, with regard to elected officials. the budget talked about "non-accountable allowances being taxable". One could argue that the per diem is an accountable allowance as details (dates, location, reason) are provided, and therefore, also not taxable.
    Budget 2017 wording is below:
    https://www.budget.gc.ca/2017/docs/tm-mf/si-rs-en.html#_Toc476839172

    "Allowances for Members of Legislative Assemblies and Certain Municipal Officers
    The reimbursement of expenses incurred in the course of carrying out the duties of an office or employment is generally not a taxable benefit to the recipient. By contrast, a non-accountable allowance for which an individual does not have to provide details or submit receipts to justify amounts paid is generally a taxable benefit.
    Certain officials may, however, receive non-accountable allowances for work expenses that are not included in computing income for tax purposes. These officials are:
    • elected members of provincial and territorial legislative assemblies and officers of incorporated municipalities;
    • elected officers of municipal utilities boards, commissions, corporations or similar bodies; and
    • members of public or separate school boards or of similar bodies governing a school district.
    The excluded amount is limited to half of the official’s salary or other remuneration received in that capacity in the year.
    Budget 2017 proposes to require that non-accountable allowances paid to these officials be included in income. ****The reimbursement of employment expenses will remain a non-taxable benefit to the recipient. "


    Does the non-accountable allowance refer to the 1/3 only?
    They then go on to talk about the reimbursement of employment expenses will remain a nontaxable benefit to the recipient - but they do appear to be talking about the Elected Officials still........

  • In CPA (Canadian Payroll Association), this is published at their website.

    Non-Accountable Allowance Paid to Municipal Officers Eliminated
    Effective 2019, the non-accountable allowance paid to municipal officers will be eliminated. The reimbursement of employment expenses will remain a non-taxable benefit to the recipient.

    They believe the new rule applied to Council and staff, if the amount is less or more than $17 a meal then the entire amount could be viewed as taxable. Any type of allowances will become taxable. The only type of kilometer reimbursements that are non-taxable are kilometer reimbursements using the reasonable rates. The only thing that will be non-taxable expense reimbursements with receipts.

  • We have always paid our Board a per diem when attending events such as conferences, etc. The per diem paid has always been paid through AP and is non taxable. I haven't read anything that would change this. I think that is what Marilyn is saying as well. We are looking at Board remuneration and the 1/3 that was previously deemed to be an expense will now all form part of their overall remuneration, along with likely an increase.

    Rose Bronswyk Kassa, CPA, CMA

  • Exactly - It comes down to the reasonableness argument. I don't think that criteria has changed - or at least I haven't seen anything....

    https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/benefits-allowances/examples-travel-allowance.html

    "Other employees

    You have to include reasonable travel allowances in the income of employees, other than a salesperson or member of the clergy, who travel to perform the duties of the office or employment, unless the allowances are received by the employee for travelling away from the municipality and the metropolitan area where the employer's establishment is located and where the employee ordinarily works or reports.

    In some situations, you may provide an allowance to your employee for travel (other than an allowance for the use of a motor vehicle) within a municipality or metropolitan area so your employee can perform his or her duties in a more efficient way during a work shift.

    This allowance is not a taxable benefit and can be excluded from the employee's income if all of the following conditions are met:
    •The employee travels away from the office
    •The allowance is reasonable. We generally consider a value of up to $17 for the meal portion of the travel allowance to be reasonable
    •You are the primary beneficiary of the allowance
    •The allowance is not an additional form of remuneration

    This means that you do not have to include this type of travel allowance if its main reason is so that your employee's duties are performed in a more efficient way during a work shift.

    For examples of situations where a travel allowance is considered a taxable benefit, go to Examples – Travel allowance.

    Reasonable travel allowances

    Whether an allowance for travel expenses is reasonable is a question of fact. You should compare the reasonable costs for travel expenses that you would expect your employee to incur against the allowance you pay to the employee for the trip.

    If the travel allowance is reasonable, you do not have to include it in your employee's income. If it is not reasonable, the allowance has to be included in your employee's income.

    For more information, see paragraph 48 in Interpretation Bulletin IT522R, Vehicle, Travel and Sales Expenses of Employees.

    Your employee may be able to claim certain employment expenses on his or her income tax and benefit return. For more information, see Employee's allowable employment expenses."

  • In a nutshell, I don't think the per diem is taxable for either employees or elected officials as long as it is reasonable and accountable......

  • Thank you everyone for a great discussion. The 2017 federal budget did not provide much in the way of information. I think the CRA has yet to include additional information in its guides soon.....keeping my fingers crossed. :)

  • Thanks for the discussion! I am with you Marilyn, the per diem is not taxable for staff or elected officials. The only change will be to make all the elected officials remuneration taxable instead of the 1/3 tax free. That means no changes to our travel expense policy for now!

  • I really appreciate the insight from all of you! After reading Marilyn's most recent post, I too will wait for further clarification. The current per diem stands as is :wink:
    Thank you so much!

    Karen Sharp, Village of Radium Hot Springs

  • Thanks for talking this through everyone! I am always so grateful to have everyone in GFOABC to bounce thoughts off and share research with to try to make sure a train of thought isn't going to derail! (groan....)

  • This was very helpful to review and provided me with valuable input when reviewing the City policy in our annual review.

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