Anonymised, illustrative composite. A data clean-up project turned up something a payroll audit had never caught: three of eleven workers on an out-of-town job were being paid a tax-free travel allowance for travelling away from an office they no longer actually reported to.
At a glance
A contractor sent an eleven-person crew to a project roughly 200 kilometres from head office for an extended stretch of work, paying a flat $95-a-day per diem to cover meals and incidentals while the crew was away from home. The per diem had been treated as a standard, non-taxable travel allowance for years, the same way it was for every out-of-town job the firm ran.
An unrelated payroll data clean-up — reconciling every employee’s recorded home-office location against their actual payroll and dispatch address — turned up an inconsistency. The Income Tax Act only excludes a travel allowance from income when it is paid “for travelling away from” the municipality where the employer’s establishment at which the employee ordinarily worked or reported was located, and the metropolitan area of that establishment — under s.6(1)(b)(vii). The CRA’s own guide for employers, T4130, Employers’ Guide — Taxable Benefits and Allowances, is the current reference for applying that test in payroll practice. Three of the eleven crew members, the clean-up found, had been reassigned on paper to a satellite branch office roughly a year earlier, and that satellite office sat inside the same metropolitan area as the job site itself. For those three, the per diem was not paying them to travel away from where they ordinarily reported — on the record the firm itself held, they were not travelling away from that area at all.
The three affected workers had each logged an average of 140 field days on the project. At $95 a day, that is 3 workers × 140 days × $95 = $39,900 in per diem payments made under the assumption they qualified as a tax-free travel allowance for all eleven crew members equally, when for these three the firm’s own records did not support that treatment.
The fix did not touch the eight crew members whose ordinary reporting location genuinely was head office — their per diems continued to qualify exactly as before. For the three, the firm corrected the underlying reporting-location record, and treated their remaining per diem payments on the project as a taxable benefit going forward: added to income, with source deductions applied, rather than paid out tax-free. The record-keeping obligation behind the whole exercise — keeping books and records able to support exactly this kind of check — sits in the Income Tax Act’s own retention rule, which requires records be kept for six years from the end of the relevant taxation year.
The correction applied within the same tax year the discrepancy was found, avoiding a multi-year retroactive adjustment. The firm also added a standing check to its onboarding process for any out-of-town assignment: confirm the worker’s recorded reporting location against the job site’s metropolitan area before per diem payments start, not after a data clean-up happens to catch it.
For the underlying travel-pay concept, see travel time and mileage pay, and for the same out-of-town-crew question from the field-operations side, see per diems and lodging on out-of-town work.
Left uncaught, the $39,900 would have sat on the books as a tax-free allowance for workers whose own file did not support that classification. A later review — whether internal or CRA-initiated — reaching back across however many years the same three workers had been recorded at the satellite office would have converted a straightforward, single-year correction into a multi-year one, with employer remittance and interest exposure compounding for every year the misclassification continued unnoticed.
The tell is a per diem paid at a flat rate to an entire crew without checking whether every individual on that crew is actually travelling away from their own recorded reporting location. The exemption in s.6(1)(b)(vii) is about the specific employee’s ordinary establishment, not about the crew as a group — a reassignment on paper that nobody thought to connect to the per diem rule is exactly the kind of gap that only shows up when someone checks the address on file, not the job title.
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