Effective April 1, 2002, a parallel system of vacation travel assistance will be available to employees. Employees will be able to choose either a 100% fully accountable advance or an 80% non-accountable vacation travel assistance payment.

The purpose of this notice is to provide information on the tax treatment of the non-accountable vacation travel assistance payment (hereafter referred to as the "payment").

An employee who lives at an isolated post with an Environment Allowance classification of 3, 4, or 5 is entitled to one payment in each fiscal year. An employee who lives at an isolated post with a rating of 1 or 2 is entitled to two payments in each fiscal year.

The payment is a taxable benefit. Employees are not required to travel to receive it.

Canada Customs and Revenue Agency (CCRA) have advised us that they are prepared to relax the requirement to withhold income tax, for employees at isolated posts in the northern and intermediate prescribed zones, if the employee agrees in writing, before he or she receives the payment, to use it entirely for vacation travel. For a list of the locations in these zones, go to the CCRA website at www.ccra-adrc.gc.ca and search for the publication "Northern Residents Deductions - Places in Prescribed Zones".

The following conditions must be satisfied:

Employees who live at an isolated post in the prescribed northern zone:

CCRA waives the income tax that the employer is required to withhold from a maximum of two 80% non-accountable vacation travel assistance payments made in a calendar year to an employee who lives in the prescribed northern zone provided the following conditions are met with respect to each payment on which no income tax is withheld.

1. At the time in the calendar year that the payment is made, the employee must have lived, on a permanent basis, at a place or places in the prescribed northern zone for at least 6 consecutive months, or it must be reasonable for the employer to expect that the employee will live at that place or those places for at least 6 consecutive months.

(Note that the 6 consecutive months can straddle two calendar years)

2. Before the employee gets a payment in the particular calendar year, the employee must provide written certification to the employer that the payment will be fully used for vacation travel in the same calendar year in which it is received, and in the period in which the employee lives at the place or at another place in the prescribed northern zone.

Employees who live at an isolated post in the prescribed intermediate zone:

CCRA waives the income tax that the employer is required to withhold on 60% of each of a maximum of two 80% non-accountable vacation travel assistance payments made in a calendar year to an employee who lives in the prescribed intermediate zone provided the following conditions are met with respect to each payment on which income tax is not withheld on the entire payment.

1. At the time in the calendar year that the payment is made, the employee must have lived, on a permanent basis, at a place or places in the prescribed intermediate zone for at least 6 consecutive months, or it must be reasonable for the employer to expect that the employee will live at that place or those places for at least 6 consecutive months.

(Note that the 6 consecutive months can straddle two calendar years)

2. Before the employee gets a payment in the particular calendar year, the employee must provide written certification to the employer that the payment will be fully used for vacation travel in the same calendar year in which it is received, and in the period in which the employee lives at the place or at another place in the prescribed northern zone.

Employees who live at isolated posts that are in neither the prescribed northern zone nor the prescribed intermediate zone:

Non-accountable vacation travel assistance payments made to employees who live at any of these locations must have income tax withheld from them because the employees are not entitled to any deduction in respect of the receipt of taxable vacation travel benefits.

Note: The requirement to make statutory withholdings for Canada Pension Plan contributions and Employment Insurance premiums is not relaxed in any of the situations described above.