Tuesday, 28 September 2010

Northern residents travel deduction

NNSL Photo/Graphic

Andy Wong
Guest columnist
Monday, September 27, 2010

Previous columns 

One step forward and two steps back. It's a well worn cliche and applies to the northern residents travel deduction. Instead of diving into this disappointing development, it helps to set the stage.

Northerners who have lived in the territories for at least six months qualify for a travel deduction if they receive a Box 32 travel benefit from their employer that's reported on their T4 slip.

For this deduction, you claim the lower of three amounts: the Box 32 benefit, actual trip expenses and a contentious amount described in the Income Tax Act as the 'lowest return airfare ordinarily available, at the time the trip was made...'. If your travel benefit was $1,500 and you spent $1,600 on a trip, you want to know what the lowest return airfare is, don't you?

The Canada Revenue Agency and northerners agree the term 'lowest return airfare ordinarily available, at the time the trip was made...' means the lowest regular fare available at the time of your trip. It was not the lowest fare but the lowest regular fare because the tax rules say the fare must be ordinarily available. This distinction is important. Regular airfare excludes time-sensitive discounted or promotional fares and offers some buoyancy to the amount - a good thing because you want the lowest return airfare to be high.

There are three ways to get the all-important 'lowest return airfare.'

You can ask at the check-in counter for the last-minute regular airfare in writing. This may be problematic if you drive out or the airport is busy. Or you print out the last-minute, online airfare. At the time of writing, the Yellowknife-Edmonton regular, next-day return, airfares posted by an airline were $1,175 (flight leaves in 4 hours); $596 (leaves the next day); $407 (leaves in 30 days).

You can check for comparable flights over the next 30 days and come to this obvious fact - the sooner you book, the cheaper your flight. This quick online research supports what we already know - last minute fares tend to be costlier.

The third method is to guess at the last-minute 'lowest return airfare' for your trip. Guessing is perfectly acceptable. The CRA guesses at that amount. For 2008 and 2009, the CRA allowed $983.15 for a Yellowknife-Edmonton trip (comparable higher amounts for other northern communities) because that was estimated to be a reasonable average last-minute regular fare for the two years. It's in the ballpark, in my opinion, and I suspect many Yellowknifers were happy to use that amount instead of fighting the CRA over a few more dollars.

Here is my current gripe. In a tax tip published earlier this year on their website: http://www.cra-arc.gc.ca/nwsrm/txtps/2010/tt100219-eng.html, the CRA explained the inner working of the travel deduction. Unfortunately, and quite maddeningly, the CRA stated the lowest return airfare means the lowest return airfare for regularly scheduled commercial flights.

This statement is incorrect because the lowest return airfare on a regularly scheduled commercial flight captures the bargain-basement discounted or promotional airfares.

The all-important word 'regular' should have modified 'airfare,' not 'scheduled commercial flight.' Curiously, when was the last time you flew on a non-regularly scheduled commercial flight?

You got to love them or hate them to invoke change. Let's try both. The CRA is trying, outstandingly, to help us understand the travel deduction but they need to understand it first.

It would help tremendously if the CRA adds this clarification to their tax tip, 'Lowest return airfare means the regular cost of an airline ticket without any promotions or discounts.'

Andy Wong, CGA, CFP, is a tax consultant at MacKay LLP, Chartered Accountants, in Yellowknife. He can be reached at: andywong@yel.mackay.ca