20 January 2000 9929846 - AUTO ALLOWANCE

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Reasonableness of Flat Monthly Rate Combined with a Per Kilometre Automobile Allowance.

Position: Not Considered Reasonable.

Reasons: Subparagraph 6(1)(b)(x) of the Act.

		January 20, 2000

	General Operations Section	HEADQUARTERS
	GST/HST Rulings & Interpretations Directorate	Wm P. Guglich
(613) 957-2102
	Attention: Douglas Wood
		1999-000649

Reasonableness of Flat Rate & Per Kilometre Automobile Allowance

This is in reply to your November 8, 1999 request for our views regarding the reasonableness of a per kilometre allowance when it is combined with a flat rate motor vehicle allowance for purposes of subparagraph 6(1)(b)(vii.1) of the Income Tax Act (the "Act").

We understand that you have a situation where the employer pays the employee a flat allowance of $XXXXXXXXXX per month plus XXXXXXXXXX cents per kilometre for the first XXXXXXXXXX kilometres in the year and XXXXXXXXXX cents per kilometre in excess of the XXXXXXXXXX kilometres. We also understand that if these allowances are considered unreasonable, the employer will not be entitled to the input tax credit under section 174 of the Excise Tax Act.

Our Comments

Subparagraph 6(1)(b)(vii.1) of the Act provides that reasonable allowances for the use of a motor vehicle received by an employee (other than an employee employed in connection with the selling of property or the negotiating of contracts for the employer) from the employer for travelling in the performance of the duties of the office or employment are not taxable. However, subparagraph 6(1)(b)(x) of the Act provides that, for purposes of subparagraphs (v), (vi) and (vii.1), an allowance received in a taxation year by a taxpayer for the use of a motor vehicle in connection with or in the course of the taxpayer's office or employment is deemed not to be a reasonable allowance if the measurement of the use of the vehicle for the purpose of the allowance is not based solely on the number of kilometres for which the vehicle is used in connection with or in the course of the office or employment.

It is our view that, since the allowance paid to the employee for the use of the employee's private vehicle is composed of a monthly rate and a cents per kilometre rate, the allowance would not be considered reasonable by virtue of subparagraph 6(1)(b)(x) of the Act, because it is not based solely on the number of kilometres for which the vehicle is used. Accordingly, in our opinion the total combined allowance would be taxable.

In the situation described in Document # 9619696, where an employee receives a flat per diem rate for the first 120 kilometres and a per kilometre allowance for each kilometre over 120 kilometres for the day, it could be viewed that an employee who travels more than 120 kilometres in a day to be in receipt of two separate allowances. The flat rate is an allowance that would be deemed not to be reasonable by virtue of subparagraph 6(1)(b)(x) of the Act and therefore would be required to be included in the employee's income. However, the per kilometre rate could qualify as a reasonable allowance for purposes of subparagraph 6(1)(b)(vii.1) of the Act, if it otherwise meets the reasonableness test.

We trust our comments will be of assistance.

John Oulton
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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