The Living Out Allowance (LOA), sometimes called subsistence, is common in Northern Alberta and British Columbia, particularly in the oil and gas sector. However, it’s also one of the most misunderstood areas of tax planning for contractors and owner-operators. When used correctly, LOA can reduce taxable income. When used incorrectly, it can create real tax exposure. This article explains what LOA is, when it applies, and where contractors often run into trouble.
What Is a Living Out Allowance?
A Living Out Allowance is intended to compensate workers for reasonable meal, lodging, and incidental costs when they are required to work away from home.
When paid to an employee, a reasonable LOA can be non-taxable, provided certain conditions are met. Employers are not required to offer LOA — it’s a business decision.
For contractors and owner-operators, the rules are more nuanced, which is where careful planning becomes important.
What Does “Reasonable” Mean?
CRA does not define “reasonable” in legislation, but commonly accepted benchmarks are often used.
- Meals: up to approximately $69 per day using CRA’s simplified method
- Incidentals: approximately $17 per day
- Private accommodations: approximately $50 per day
- Hotels: actual cost, supported by evidence of local rates
In a 2020 a Tax Court of Canada case, CRA accepted a $135 per day LOA as reasonable based on the circumstances.
Documentation matters. Receipts are required unless the CRA simplified method is used, and even then, adequate support for travel and time away is critical.
Special Work Sites and Remote Locations
LOA is most commonly excluded from income under Income Tax Act subsection 6(6) when work is performed at either a special work site or a remote work location.
Special Work Sites
To qualify, all of the following must apply:
- The employee is required to work away from their principal residence
- The work is temporary
- The employee maintains a primary residence elsewhere that is not rented out
- Due to distance, daily return home is unreasonable
- The employee is away for at least 36 hours
A TD4 form must be completed for special work sites, and this can affect other deductions such as the northern residents deduction.
Remote Work Locations
A work site may be considered remote if it is generally more than 80 km from a community of at least 1,000 people.
To qualify:
- It is unreasonable for the employee to establish their own accommodation
- The employer does not provide lodging
- The employee is away for at least 36 hours
A TD4 form is not required for remote locations.
LOA for Owner-Operators (Corporations)
Many owner-operators in Northern Alberta operate through corporations, for example, welders, safety consultants, instrumentation technicians, and similar trades. An LOA can apply only if there is an employer-employee relationship, even when the employee is also the owner.
Example
Jim owns XYZ Ltd., which contracts services to an oil company. Jim’s primary residence is in Dawson Creek. XYZ works at a site more than 80 km from surrounding communities, and Jim is away for at least 36 hours per trip. XYZ works at the site for 120 days during the year.
A simplified example:
- Meals: 120 days × $69 = $8,280
- Accommodations: 120 days × $50 = $6,000
- Incidentals: 120 days × $17.30 = $2,076
Total LOA: $16,356
If reasonable, this amount may be deductible to the corporation and received tax-free by Jim.
Key Requirements (and Common Pitfalls)
To support an LOA:
- The corporation should invoice customers separately for LOA where possible
- The owner must be paid salary, not only dividends
- A written LOA policy should exist
- Detailed travel logs should be maintained
- TD4 forms should be completed where required
- The employee must personally pay for meals and lodging
Double dipping is not allowed.
If the corporation pays expenses directly and pays LOA, CRA may reassess. In many cases, it may be simpler to deduct travel costs directly in the corporation rather than use LOA, especially when requirements are difficult to meet.
Important Warning: Personal Service Business (PSB)
If most corporate income comes from a single client, the corporation may be considered a Personal Service Business. PSBs face:
- Restricted deductions
- Higher effective tax rates
- Disallowed LOA claims
This risk should be assessed before implementing any LOA strategy.
Final Thoughts
Living Out Allowance can be valuable, but only when done correctly.
Key takeaways:
- Documentation is critical
- Amounts must be reasonable
- You must be an employee
- Forms must be completed when required
- You cannot deduct expenses and claim LOA on the same costs
The rules are complex and change over time. Contractors should not be expected to interpret tax legislation on their own.
How Eclipse LLP Can Help
At Eclipse LLP, we work closely with contractors and owner-operators across Northern Alberta and British Columbia who deal with LOA, remote work, and complex travel arrangements. If you’re unsure whether LOA applies to your situation or want to ensure your current approach would hold up under CRA review, a short conversation can provide clarity and peace of mind. Reach out to Eclipse LLP to discuss your circumstances and get practical, professional guidance before small issues become larger ones.
