CRA confirms that if a vehicle allowance is too low, the employee can include the allowance and deduct the vehicle expenses

S. 6(1)(b)(xi) provides that if any of an employee’s vehicle expenses are reimbursed by her employer, the full amount of any vehicle allowance received by her will be included in her employment income. However, where the employee receives a vehicle allowance that is less than the maximum which could be received as a tax-free vehicle allowance, CRA considers that where the:

employee elects to include in income the amount of a non-taxable motor vehicle allowance, the employee can deduct the expenses for that vehicle which were actually incurred and which are otherwise deductible on condition that the employee can demonstrate that such expenses are in excess of the allowance in question.

Neal Armstrong. Summaries of 2 February 2017 Quebec CPA Individual Taxation Roundtable, Q.1.7, 2016-0674811C6 Tr under s. 8(1)(h.1) and Reg. 200(3).