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: Whether a rate of $0.50 per kilometer motor vehicle allowance would be more reasonable.
Position: Question of fact but under paragraph 18(1)(r) of the ITA, in order for an employer to deduct more than the prescribed amount, the allowance must be a reasonable amount and be included in the employee's income.
Reasons: As it is a question of fact, only general comments provided.
2000-001092
XXXXXXXXXX M. Shea-DesRosiers
(613) 957-8953
June 20, 2000
Dear Sir:
Re: Vehicle allowances
This is in reply to your letter of February 29, 2000, wherein you requested our opinion concerning the income tax treatment of vehicle allowances in excess of the current allowed rate of $0.35 per kilometer.
You describe the situation as follows: The company operates a heavy equipment construction business which involves earth moving and bush work mainly for oilfield companies. The company has employees who will be required to use their personal trucks for traveling to various construction sites for the company. They report to the head office and are then sent to various sites, carrying repairs, fuel tanks with fuel for heavy machinery, etc. The sites are generally oil lease sites where the heavy equipment is used to clear sites, dig holes, etc. There is often no actual roads into these sites prior to them being cleared or the roads are very poor. This, along with the carrying of fuel, pulling of trailers, etc., creates heavy wear and tear on the employees' vehicle. The company believes that a reimbursement rate of $0.50 per kilometer which is higher than the current rate of $0.35 per kilometer allowed by section 7306 of the Income Tax Regulations (the "Regulations"), would be more reasonable.
Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling submitted in the manner set out in Information Circular 70-6R3, dated December 30, 1996. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to offer the following general comments which may be of assistance to you.
Subparagraph 6(1)(b)(vii.1) of the Income Tax Act (the "Act") excludes from employment income a reasonable allowance for the use of a motor vehicle received by an employee, other than a commission sales employee, for traveling in the performance of the duties of office or employment. An employee in receipt of a motor vehicle allowance that is excluded from income would not be permitted to deduct motor vehicle expenses under paragraph 8(1)(h.1) of the Act. In addition, paragraph 18(1)(r) of the Act, and section 7306 of the Regulations, limit the amount that an employer can deduct in respect of an allowance paid to an employee for the business use of an automobile unless the amount is required to be included in the employee's income.
As you have noted, the limit is currently $0.35 per kilometer. Basically, this means that, in order for an employer to deduct an allowance paid that is greater than $0.35 per kilometer, apart from meeting the test of reasonableness that is applicable to all expenses, the allowance must be included in the employee's income. However, employees would be entitled to deduct reasonable expenses incurred to operate the vehicle in the performance of their duties. We enclose Interpretation Bulletin, IT-522R, entitled "Vehicle, Travel and Sales Expenses of Employees", which includes a description of the provisions concerning the deduction of these expenses.
It is a question of fact whether a vehicle allowance paid by an employer which is greater than the current prescribed amount of $0.35 per kilometer is a reasonable amount paid. As it is a question of fact, an employer should maintain proper supporting documentation.
We trust the above comments will be of assistance to you.
Yours truly,
Roberta Albert, CA
for Director
Business and Publications Division
Income Tax Rulings directorate
Policy and Legislation Branch
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