The Living out Allowance (LOA), also referred to as subsistence, is common among oilfield contractors in Northern Alberta, but it’s often misunderstood. This article explains what it is and how it can reduce your taxes.
A lot of welders and oilfield contractors can get some kind of LOA or subsistence, but it’s important to keep a record of work-related travel. Your bookkeeper may not know about this allowance and won’t necessarily provide it if you don’t have the right support.
If you’re an employee then your employer decides whether they’ll pay you a living out allowance, but they don’t have any obligation to pay it.
Okay – let’s get into it!
A living out allowance is exactly what it sounds like – an allowance for time spent away from home when working. Employers can pay this to employees and, as long as it’s “reasonable”, it’s tax-free.
“Reasonable” isn’t defined by the CRA, but 2023 rates posted by Canada’s National Joint Council provide some good guidance:
Total daily meals – $109.45 with receipts
Daily Incidentals – $17.30
Private accommodations – $50
Hotels – $ Varies. Provide screenshots of rates in the area.
There was a Tax Court of Canada case in 2020 where the CRA agreed that $135/day for a living out allowance was reasonable.
You need receipts to back up these amounts unless you use CRA’s simplified method, which allows you to claim $23/meal for every 4 hours away from the office (up to $69/day). Note that this is the CRA’s administrative position (not tax legislation) as of 2023, which may change and may not hold up in court.
Lodging/incidental expenses can be claimed if you work at a remote location or special work site (see below).
For non-taxable (reasonable) lodging expenses, you need to meet all of the following conditions:
If these conditions are met, a TD4 form must be completed to exclude these benefits from the employees T4. This may affect their northern residency deduction, if the special work site was in a prescribed zone.
A work location is remote if it’s over 80km’s from an established community of over 1,000 people. For non-taxable (reasonable) lodging expenses, you need to meet all of the following conditions:
A TD4 form is not required for remote work locations.
An owner operator is a small business owner who also runs their daily business operations. There are a lot of oilfield related owner operated companies in Grande Prairie and Northern Alberta. This could be welders, OH&S, instrumentation techs etc.
Bobs company ABC Ltd. (“ABC”) contracts out to one of their customers, Canadian Oil Limited (“COL”). Bob’s primary residence (home) is in Grande Prairie. ABC is working at a COL site that’s located between Grande Cache and Grande Prairie (80 km’s away from each community). Bob is away from home each trip for at least 36 hours. ABC works at this site for 120 days (not consecutive) during 2023.
The subsistence (LOA) allowance could be more as long as it can be argued reasonable for the circumstances. This $16,356 would be an expense in ABC and provided to Bob as a tax-free allowance.
There are some steps that should be taken to get this claim:
Double dipping (ABC paying for all of Bob’s meals and lodging expenses and also paying him a LOA) can result in double taxation.
In a lot of cases it’s easiest to just deduct living out expenses (hotels, meals etc) directly in your corporation and forget about the LOA (you should still keep receipts). You have to meet a lot of requirements to take LOA and you need to be paying for meals/lodging with personal after-tax dollars, so the tax savings may not even be there.
Also – if you’re an owner operator with most of your income coming from one company then you may be deemed to have a “Personal Service Business” (PSB). You can’t claim subsistence and there are other negative tax consequences of being a PSB.
Still confused? Yeah… it’s not always straight-forward. And the rules are always changing. As a contractor, you shouldn’t have to interpret the income tax act. That’s what your accountant is there for.
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Note that tax legislation and rates change regularly. A qualified CPA should be consulted about individual circumstances.
Failing to file your taxes in Canada can result in penalties, interest, and loss of government benefits. The CRA may take action such as garnishing wages or placing liens on property. Filing as soon as possible and seeking professional help can help.