June 11, 2018
21.4.1109
Background
The grievor has been an employee at DepartmentX in City A since May 2000. As of 2010, a portion of the grievor’s duties requires crossing the border on a daily basis to a Department X owned facility in City B (3 km away). At all relevant times, it is understood that the grievor’s primary residence is in Canada. On or before June 2014, there were changes to US/Canadian legislation which resulted in changes in taxation requirements (FACTA June 27, 2014). In July 2014 and again in February 2015, issues were raised to management regarding the grievor as it pertains to the grievor’s income tax situation as a result of crossing the border to work at a facility in the US. Shortly thereafter, the grievor submitted three travel claims on July 7 ($9,022.33), October 1 ($2,708.14), and November 9, 2015 ($446.14) in the total amount of $12,176.61. These invoices represented the filing of income tax in the US dating back to the tax year ending December 31, 2008. The Employer denied these claims, indicating that they were not a result of working in the US, but would have been incurred regardless of where the grievor worked given the grievor’s dual residence status (Canadian/US).
Grievance
The Employee is grieving the ongoing failure of the Employer to pay the three expense claims ($9,022.33, $933.82 and $3,708.14) stating that these expenditures were all incurred as a result of repeated travel to the United States, which is a requirement of the job. The employee is of the opinion that this is in violation of article G5 of the applicable collective agreement, in part but not limited to the NJC Foreign Service Directives and the NJC Travel Directive.
Bargaining Agent Presentation
The Bargaining Agent representative contended that the grievor was not treated within the intent of the Directive as it is their position that the grievor was entitled to reimbursement of expenses incurred for filing with the Internal Revenue Service (IRS). These expenses arise directly from the requirement put upon the grievor to travel into the US in the performance of the grievor’s duties. There is no dispute that the grievor is required to cross into the United States for work and that the grievor is on authorized government travel when carrying out duties in the US. By extension, the grievor is entitled to reimbursement of reasonable expenses necessarily incurred while travelling on government business, within the intention of the Directive that employees are not out of pocket. According to the Bargaining Agent, the expenses subject to this grievance are not typical of those that employees often claim as travel expenses, but they are no more atypical than the work situation that gave rise to them.
Under subsection 3.1.2 of the Directive, employees are provided a number of additional business expenses that can be reimbursed and it is the Bargaining Agent position that the expenses subject to the grievance can reasonably be reimbursed under this provision.
The employee shall also be reimbursed for service charges/fees for actual and reasonable expenses and for financial transactions, such as but not limited to:
- Automated Banking Machine use;
- government travel card use;
- credit/debit card use;
- financial institution foreign currency transaction commission(s);
- traveller’s cheques acquisition; and
- cheque-cashing fees
The Bargaining Agent representative explained that if perhaps some could argue that the expenses in question are not reasonable, it is less reasonable to consider them the responsibility of the employee and result in the employee being “out of pocket” as a direct result of Employer required travel. These expenses were clearly not incurred by the grievor for any frivolous purpose, but rather because the work situation required this of the grievor. It was determined by the grievor’s advisor that an employee who works in the US on behalf of the Employer and who is not a US resident has state tax filing requirements. It is not based on citizenship, but rather on being a non-resident and earning income sourced at that location in the US. Therefore, all employees acting in the same capacity and at the same work location as the grievor and who often travel into the US on behalf of the Employer are required to file an annual US tax return.
Those who choose to comply with US law face immediate consequences in the form of costs associated with filing a return as well as payment of any tax found owing. Those who choose to ignore the US tax law might face no immediate financial consequence yet must live with the possibility of being detected and convicted of tax evasion and then suffer significant financial penalty.
It is the Bargaining Agent position that the real issue is the reimbursement of expenses incurred by the grievor as a direct result of the duties of the position. Therefore the Bargaining Agent requests that the grievance be allowed, and that the corrective actions requested to be granted.
Departmental Presentation
It is the Employer’s contention that the grievor’s obligation to file income tax returns in the US derives from having dual Citizenship, not solely traveling into the US for the Employer. When hired by the Department in 1989, the grievor completed a “Notice of Appointment and Staff Questionnaire”. On that form, in the citizenship section, the grievor noted “Dual Canadian/American”. According to the Internal Revenue Service (IRS), for a US citizen or resident alien, the rules for filing income, estates, and gifts tax returns and paying estimated tax are generally the same whether you are in the US or abroad.
According to the US-Canada income tax treaty, remuneration other than a pension, paid by Canada to a citizen of Canada in respect of services rendered in the discharge of functions of a governmental nature shall be taxable only in Canada. It was suggested that by attaching form 8833 or 1040X, both US source and Canadian source Government of Canada salary or wages can be excluded. It was noted that the first invoice submitted by the grievor was for the years 2008, 2009, 2010, 2011, 2012, and 2013. The forms were completed for at least two tax years before the grievor’s requirement to cross the border on an almost daily basis. Further the invoices do not include preparation of form 8833 or 1040X, which would be required to claim treaty exemption of wages paid to a Canadian citizen by the Canadian Government.
In January 2016, the Employer received an opinion from Ernst & Young LLP regarding the tax implications of employees performing cross border services. That opinion indicated that US Citizens who work for a foreign government are not exempt from US taxation. Therefore, it appears that the absence of a fee for preparation of those particular forms is likely because the grievor’s citizenship precluded taking advantage of the treaty tax relief.
It is the Employer’s conclusion that whether or not the grievor travelled for the Employer, the grievor would have been required to submit US tax returns due to having US citizenship. At any rate, the Employer maintains that tax preparation fees are not additional business expenses that would be reimbursed under subsection 3.1.2 of the Travel Directive. It is the Employer’s position that these expenses are not “reasonable expenses necessarily incurred while travelling on government business”. It is not the intent of the Directive to cover personal expenses for fees charged in the preparation of personal income tax.
It is the opinion of the Employer that it would seem beyond the intent of the Travel Directive to pay for expenses that could otherwise be compensated.
Executive Committee Decision
The Executive Committee considered and agreed with the report of the Government Travel Committee which concluded the employee had been treated within the intent of the Travel Directive. The grievance is therefore denied.