What is a living out allowance and how do I pay it to employees/contractors?
A living out allowance is an amount paid to employees or contractors who work away from their principal place of work. This can include accommodations, daily meals and incidentals.
Allowance vs reimbursement
An allowance or an advance is any periodic or lump-sum amount that is paid to employees/contractors on top of their regular wages/rates, to help them pay for certain expenses related to out-of-town work, without having them support the expenses with receipts.
The allowance is usually a predetermined amount (like $17 for a meal) and is not based on actual cost. An allowance can be calculated based on distance, time or something else, such as a meal allowance based on the number of meals per day.
A reimbursement is an amount you pay to your employee to repay expenses he or she had while carrying out the duties of employment. The employee has to keep proper records (detailed receipts) to support the expenses and give them to you.
Determine if the benefit is taxable
Your first step is to determine whether the benefit you provide to your employee is taxable and has to be included in their employment income when the benefit is received or enjoyed.
Whether a benefit is taxable or not depends on whether an employee or officer receives an economic advantage that can be measured in money, and whether that individual is the primary beneficiary of the benefit.
Calculate the value of the benefit
Once you determine that the benefit is taxable, you need to calculate the value of the specific benefit.
The value of a benefit is generally its fair market value (FMV). This is the price that can be obtained in an open market between two individuals dealing at arm's length.
The cost to you for the particular property, good, or service may be used if it reflects the FMV of the item or service.
You must be able to support the value if you are asked.
Visit the CRA to learn more about allowances and reimbursesments.
CRA Prescribed Rates
The CRA has prescribed rates that are used for certain allowances.
For information about these rates for a prescribed zone, please use the following sites: