Travel allowance
A set amount an employer pays toward an employee's work travel costs, instead of reimbursing each expense against receipts.
In short
- An allowance pays a set amount. A reimbursement pays the actual cost against receipts.
- In Canada it is tax-free when travel is required, away from the usual workplace and the amount is reasonable.
- In the US it stays out of wages when paid under an accountable plan.
A travel allowance (or traveling allowance) is money an employer pays to cover the cost of work travel, set in advance rather than worked out from receipts. It can be a daily rate for meals and incidentals, a per-kilometre or per-mile rate for driving, a flat amount per trip or a monthly amount for employees who travel often.
Allowance versus reimbursement
With a reimbursement, the employee pays, submits receipts and is paid back the actual cost. With an allowance, the employee receives the set amount whatever they actually spend. Allowances save paperwork, and reimbursements follow the actual cost more closely. Many policies combine the two: an allowance for meals and incidentals, reimbursement at cost for flights and hotels.
Tax treatment in Canada
The CRA treats a travel allowance as non-taxable when the employee is required to travel for their duties, the travel is away from the municipality and metropolitan area where they normally report for work, and the amount is reasonable. An allowance that fails these conditions, for example one paid when the employee wasn't required to travel or one well above reasonable costs, is taxable employment income. Vehicle allowances have their own rules.
Tax treatment in the US
The IRS looks at whether the employer has an accountable plan. Under one, expenses must have a business connection, the employee must account for them within a reasonable period, and any excess must be returned. Under the IRS's fixed date method, that means accounting within 60 days and returning any excess within 120 days. Allowances paid this way are not wages; allowances under a nonaccountable plan are. A per diem allowance at or below the federal rate counts as accounted for when the employee proves the time, place and business purpose of the travel.
Setting the rate
Many Canadian employers benchmark meal and incidental allowances on the NJC rates and vehicle allowances on the CRA's per-kilometre rates. US employers often use the GSA per diem rates and the IRS standard mileage rate. Our pages for NJC meal allowances, the CRA mileage rate, GSA per diem rates and the IRS mileage rate show the current figures.
Worked example
A field technician's month
A field technician in Ontario visits clients across the region. Their employer pays $60 a day for meals and incidentals on days spent outside the municipality where they report for work, well under the NJC rates the employer uses as its benchmark. Over a month with nine travel days, the allowance comes to $540. Because the travel is required, away from the usual workplace and reasonable in amount, it isn't added to their employment income.