Employers can pay employees a per diem allowance as compensation for the expenses incurred whilst on a business trip. This can include expenses regarding meals and lodging for example.
In principle, such a per diem allowance should be included in the taxable income of an employee. However, the allowance can be excluded from the employee’s taxable income if all of the following conditions set by the CRA are met. There are however no defined maximum amounts as we often see in other countries such as the USA.
The per diem allowance is not considered taxable income if all the following requirements apply:
- The employee travels away from the workplace: The employee travels away from the municipality and the metropolitan area of the workplace, which is where the employer’s establishment is located and where the employee ordinarily works or reports. An employer may provide a tax-exempt allowance for an employee travelling within that municipality or metropolitan area in case the purpose is to perform their duties more efficiently during a work shift.
- The allowance is reasonable: The CRA considers a value of up to $23 for the meal portion of the travel allowance to be reasonable. In general, whether a per diem allowance for travel expenses is reasonable is a question of fact. An employer should pay a per diem allowance based on the reasonable expenses they would expect their employee to incur during a business trip.
- The employee is the primary beneficiary of the allowance.
- The allowance is not an additional form of remuneration.
The CRA provides some examples where a per diem allowance is considered taxable or non-taxable on their website.
For part-time employees, salespersons and clergy, there are specific rules regarding the taxability of travel allowances covering meals and lodging. You can find more information about these specific types of employees on CRA’s website.