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Thursday, February 17, 2011 by Kim Drever

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For Canadians residing in the North in either a “prescribed Northern zone” or a “prescribed intermediate zone”, there is a special deduction to be claimed when filing their personal income tax returns for certain travel benefits and living costs. There are two parts to this deduction – the basic amount is available to all residents who have lived in prescribed zones for a six month period either beginning or ending in the calendar year, but there is an ability to increase this deduction if the employer provides assistance with travel to certain designated cities in Canada.

All residents of either a “prescribed Northern zone” or a “prescribed intermediate zone” can claim a deduction if they have lived in the zone for a period of at least six months beginning or ending in the calendar year.

This deduction is available for all members in the household.

Who can claim the Travel Component of the Northern Residents Deduction?

When an employer provides a travel allowance to their employees to help defray the costs of travel from their Northern home to their closest designated city, the amount is included in the employees income for the year. The employee can claim a deduction against this employment benefit.

However, to gain access to this deduction, the employee and the employer cannot be related. Therefore, shareholders and others related to the shareholder cannot deduct this additional travel component, even if they receive the travel allowance from their employer.

How much can the employee deduct as the travel component?

The employee can deduct the least of the following amounts:

The value of the allowance received from their employer
The amount of the trip
The lowest return airfare available at the time the trip was made from your home airport to the nearest designated city

We have found that the CRA has a standard amount as the lowest return airfare, and will often dispute the amount claimed. In order to substantiate the deduction, it is suggested to determine the actual airfare for the period of travel, and keep a copy in the event that the CRA disputes the deduction.

How can an employer pay the travel allowance?

The employer would pay the employee a salary PLUS the travel allowance. The employer can pay the employee a reimbursement after the trip, or a set allowance (i.e. – a set amount per hour or a specific annual amount), provided this is detailed in the employment contract. The CRA does not accept that a portion of the salary is the travel allowance, it must be paid on top of the salary.

What are the designated cities?

The designated cities are St. John’s, Halifax, Moncton, Quebec, Montreal, Ottawa, Toronto, North Bay, Winnipeg, Saskatoon, Calgary, Edmonton, and Vancouver

If you have questions on how to maximize the Northern Residents Deduction, please consult your local MNP Tax advisor or contact me and we would be happy to assist you.

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Comments:

Sunday, March 25, 2012 - 03:51PM GMT | Jeannine Demers

I live in Grande Prairie, Alberta which is in prescribed zone B. I am slightly confused about the definition of the nearest designated city when making a claim. If I travelled to Lethbridge, AB, the nearest designated city to that location would be Calgary, however the nearest designated city to my home is Edmonton. Which would I use? If I use Edmonton, what would I use for my actual costs - the costs of driving to Lethbridge? Jeannine Demers

Monday, March 26, 2012 - 04:31PM GMT | Kim Drever

The nearest designated city for Grande Prairie is Edmonton meaning you could deduct the least of the following three amounts. 1) The value of the allowance received from the employer (this will be in box 32 of your T4); 2) The actual amount of the trip that you took (actual cost, or using the simplified method explained below - this can be anywhere and is not limited to Edmonton); and 3) The lowest return airfare available at the time the trip was made from your home airport to Edmonton, which is your nearest designated city. In order to calculate the actual amounts for #2 above, you can use either the detailed or simplified method. Under the detailed method, the actual amount of the cost of the trip to Lethbridge would be used for #2. This would involve keeping all your receipts for your hotels, meals, gas, etc. The alternative is to use the simplified method. Under the simplified method you would use the per kilometre rate as prescribed by the CRA for travel costs ($0.53 per km), and a rate of $17 per meal (or $51 per day for meals), plus the actual cost of hotels, and additional expenses. Although your designated city is Edmonton, when calculating the actual amount of your trip for #2, you use the expenses for your trip. In 2011, you will use your trip to Lethbridge to determine the amount for #2. Also, if you take trips to places outside Canada, you would track your actual costs for the amount in #2. Since the amount in #3 above is the lowest return airfare to Edmonton, you will never be able to claim more than the equivalent of the flight from Grande Prairie to Edmonton. We are currently using the limit of $400 per person as the lowest return airfare available at the time the trip was made from Grande Prairie to Edmonton, based on the historical amounts allowed by the CRA.

Wednesday, April 11, 2012 - 11:12PM GMT |

What all factors into being eligible for the additional residency amount? My cousin lives in Whitecourt and I believe he can claim the basic residency amount but not of the other?

Thursday, April 12, 2012 - 02:49PM GMT | Kim Drever

Thanks for your question on the Northern Resident Deduction for the city of Whitecourt, AB. Unfortunately for your cousin, Whitecourt is not in a "Prescribed Northern Zone" or a "Prescribed Intermediate Zone", thus cannot claim the Northern Resident Deduction. To answer your question about the basic deduction and the additional deduction, if the taxpayer resides in a prescribed zone: - Each member of the household can claim the basic deduction OR - One member of the household can claim the basic deduction and the additional deduction Therefore, it is necessary to determine which option makes the most sense for a person living in a prescribed zone.

Thursday, April 12, 2012 - 03:16PM GMT | Anonymous

Hello, I live in Hay River, NT. We would like to deduct a trip we made to Manitoba last year. I flew there with my 2 kids, my husband met us there (by plane) at a later date and we all drove back. I think I will have to use the lowest return airfare available at the time the trip was made from Hay River airport to Edmonton. Is that correct? So that is the only amount I can deduct? And where do I get this information. How do I know the amount allowed by the CRA? Will I be able to deduct this amount for the 4 members of our family? Thanks for the help.

Wednesday, May 02, 2012 - 11:52PM GMT | Anonymous

I live in Fort Nelson, BC. since 2007. 2012 will be the first year I will be receiving a set monthly fuel travel allowance from my employer. In previous years since 2007 I have been reimbursed for actual hotel, meal and fuel receipts. Once a year I travel to Ontario to visit family. Am I able to claim this?

Thursday, May 03, 2012 - 10:50AM GMT |

The allowances you receive from your employer for fuel is a different allowance than the travel component of the Northern Residents Deduction. Here is a brief summary of different types of allowance you can receive, and their tax treatment: If your employer provides you a travel allowance for the Northern Residents Deduction, you could use your trip to Ontario as the actual travel costs, but would still be restricted to the lesser of the amount in box 32 of your T4, and the costs to fly to your nearest designated city (I believe it is Vancouver for you), and the costs for your trip to Ontario. It sounds like you are receiving a travel allowance to perform your duties of employment. If you are receiving an allowance for fuel for work travel and you don't have to support the actual costs to your employer with receipts, then the amount is taxable on your personal tax return, and you can claim your actual costs against it, provided your employer signs a T2200. If you receive an allowance based on a per kilometre amount for work travel on your personal vehicle, it is not taxable if it is a reasonable per km rate. If you receive a living allowance (often called "subsistence" in the oil and gas industry) for travel, accomodations and meals while travelling away from Fort Nelson, this is not taxable if it is a reasonable amount, and you must pay all of the costs of the travel.

Thursday, May 03, 2012 - 11:05AM GMT | Kim Drever

With respect to the question from Hay River, if the costs of your trip to Manitoba are higher than the lowest cost of a return flight to Edmonton from Hay River, your travel component of the Northern Residents Deduction will be restricted to the cost of return flights to Edmonton for your family or the amount in box 32, whichever is lower. Unfortunately, I don't have details on the cost of the lowest return flights from Hay River to Edmonton for the time of your travel. If you know the amounts from past travel, or can speak to people in your area that also claim the travel amount, perhaps they will have an amount for the return flight. As a suggestion, for your travel in 2012, I would print off the costs for the return flights to Edmonton from Hay River for the time of your travel so you have an amount to use when filing your 2012 personal tax returns.

Wednesday, May 16, 2012 - 02:52PM GMT | Bonnie

I live in Iqaluit, Nunavut and would like to know the lowest return airfare amount I can put on my trip form for Iqaluit to Ottawa.

Sunday, May 20, 2012 - 07:57AM GMT | Emily

Hello, My employer has provided the travel allowance for the Northern Residents' Deduction. Can each member of my family claim two trips or just me? I am the only one who received the travel allowance. Can I claim expenses for all members of my family if we all travelled together? For example would the meal allowance be $51 x 4 people? Also, I do mystery shopping. Some expenses such as purchase of meals or gas are expenses. Can I deduct the expenses and just claim amounts for completing the job? What about other expenses such as gas? I also have a home business. What expenses am I allowed to claim? I have done it where I count the number of rooms in the house and then calculate a portion of the utilities and taxes. Is this correct?