CRA indicates that a kilometer-based minimum car allowance must be intended to compensate for actual expenses

S. 6(1)(b)(x) deems an employee’s car allowance to be unreasonable if it “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.” Did 2012-0460481E5 (which found that a fixed allowance of $4.60 for each trip made of less than 10 kilometres in the same day in running errands for the employer was deemed to be unreasonable by s. 6(1)(b)(x)) reverse 2007-0228521I7 (which accepted the employer’s compensation policy of providing for a daily minimum payment where the number of kilometres traveled per employee was less than a specified number). In indicating no change, CRA stated:

[A] minimum daily allowance based on the number of kilometres traveled should not have adverse tax consequences if it is representative of the actual use of a vehicle and is established to compensate an employee for expenses actually incurred for the use of the employee’s vehicle in the performance of duties of employment. This position is still in effect.

Neal Armstrong. Summary of 24 June 2016 Internal T.I. 2014-0555611I7 Tr under s. 6(1)(b)(x).