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: Whether rental payments made to an employee for the use of his or her vehicle and tools is employment income or rental income?
Position: Employment Income.
Reasons: The rental payments are received by virtue of an employer/employee relationship.
XXXXXXXXXX
2012-044223
C. Underhill
November 29, 2012
Dear XXXXXXXXXX:
Re: Amounts Received by an Employee for the Use of a Motor Vehicle and Tools
We are writing in response to your email of March 30, 2012, concerning the tax consequences of amounts paid by an employer to an employee. More specifically, you have enquired whether rent paid by an employer to an employee for the use of the employee's vehicle and tools is employment income or rental income.
In the situation you described, an employee charges his or her employer an hourly rental rate for the use of his or her vehicle and tools used in the performance of his or her employment duties. There is a formal rental agreement between the employer and employee. The employee does not rent his or her vehicle and tools to anyone other than his or her employer.
In a situation where an employer makes rental payments to an employee for the employee's vehicle and/or tools used in the employer's business, it is the Canada Revenue Agency's view that the payments are received by virtue of the employer-employee relationship and are included in the employee's employment income under subsection 5(1) of the Income Tax Act.
This is consistent with paragraph 23 of Interpretation Bulletin IT-470R, Employees' Fringe Benefits (Consolidated), which provides that where an employer makes payments to its employees to offset the cost of tools that the employees are required to have to perform their work, the payments must be included in the employment income of the employees.
We trust these comments will be of assistance.
Yours truly,
Nerill Thomas-Wilkinson
Manager
for Director
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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