27 October 2004 External T.I. 2004-0084201E5 - Employee Reimbursement-Cost of a Rental Car

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: The employee is reimbursed by the employer for the cost of a rental car used to travel between the employee's temporary office and hotel. Whether or not this is a taxable benefit to the employee.

Position: No.

Reasons: The employee would not have to rely on the provisions of subsection 6(6) since the employee is simply travelling in the course of carrying out his or her employment duties. The reimbursement of the cost for the rental car for travel between the employee's temporary office and hotel is not included in employment income under paragraph 6(1)(a) because the employee is required to travel away from the employer's place of business at which the employee ordinarily works. A reimbursement for travel expenses is generally not income for the employee receiving it unless it represents payment of the employee's personal expenses. Subparagraph 6(1)(b)(vii) or (vii.1) exempts reasonable allowances for travel expenses or for the use of a motor vehicle.

XXXXXXXXXX 2004-008420
Kathryn McCarthy, CA
October 27, 2004

Dear XXXXXXXXXX,

Re: Employee Reimbursement - Cost of a Rental Car

We are writing in response to your e-mail dated July 6, 2004. This is to clarify our technical interpretation (2004-0059521E5), which was issued to you on April 29, 2004, concerning the above-noted issue.

You described a hypothetical scenario in which Ms. Taxpayer owns a home in First City, Canada, where she lives with her family. Her employer sends her for a week to the employer's office in Second City, Canada, to perform her duties of employment.

Ms. Taxpayer takes the train to Second City and rents a hotel room for the week. Given the distance from the employer's office in Second City to any hotel, Ms. Taxpayer must rent a car for travel between the hotel and the office. At the end of the week, Ms. Taxpayer returns the rental car and to her principal place of residence in First City. The employer reimburses her the cost of the rental car. You conclude that Ms. Taxpayer has a taxable employment benefit for the amount of the reimbursement for the rental car, which must be reported on a T4 slip, since it is not exempt from employment income pursuant to subparagraph 6(6)(b)(i) of the Income Tax Act (the Act). In your opinion, this is a punitive result and you seek our comments on this scenario.

Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. We are, however, prepared to provide the following comments.

In the situation outlined above, an employee would not have to rely on the provisions of subsection 6(6) of the Act since the employee is simply travelling in the course of carrying out his or her employment duties. In our view, the reimbursement of the cost for the rental car for travel between the employee's temporary office and hotel is not included in Ms. Taxpayer's employment income under paragraph 6(1)(a) because she is required to travel away from the employer's place of business at which she ordinarily works. As explained in the T4130, Employer's Guide - Taxable Benefits, a reimbursement for travel expenses is generally not income for the employee receiving it unless it represents payment of the employee's personal expenses. Additionally, subparagraph 6(1)(b)(vii) or (vii.1) exempts reasonable allowances for travel expenses or for the use of a motor vehicle.

The above noted publications are available on our website at www.cra-arc.gc.ca. We trust our comments will be of assistance to you.

Yours truly,

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch