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 position has changed with respect to reasonableness of vehicle allowances paid to employees where employees incur expenses in excess of such allowances.
Position: Our position has not changed. It is a question of fact whether an allowance is reasonable.
Reasons: Consistent with paragraph 41 of IT-522R and previous opinions issues.
XXXXXXXXXX 2000-005619
Wayne Antle
December 8, 2000
Dear XXXXXXXXXX:
Re: Reasonable Motor Vehicle Allowances
This is in response to your letter dated November 10, 2000 concerning whether the position of the Canada Customs and Revenue Agency (the "Agency") has changed with respect to the reasonableness of a per-kilometer motor vehicle allowance paid to an employee where the allowance is not sufficient to cover the vehicle expenses incurred. Paragraph 41 of IT-522R states that an allowance for travel expenses is not considered unreasonable merely because the employee's total expenses for business travel exceed the total travel allowances received in the year.
Our position in IT-522R has not changed. In your letter, you refer to our correspondence issued on August 15, 2000 (File No. 2000-0027727) in which we state that, where the employee's total expenses for business use in a year exceed the total travel allowance received in that year, the Agency will accept that the allowance is not reasonable. This must be considered in the context of the entire paragraph. We also state that the Agency generally takes the view, for income tax purposes, that any allowance that is intended or designed to cover the employee's out-of-pocket costs to use the vehicle in the course of performing the duties of employment would be a reasonable allowance. Our reply was given on the presumption that the allowance was below what an employee's reasonable cost of operating a vehicle would be.
This issue was considered in the cases of Gauvin v. MNR (79 DTC 696) and Hudema v. the Queen (94 DTC 6287). In those cases, the fact that actual business-related expenses exceeded the amount of the automobile allowance, was not sufficient to establish that the allowance was unreasonably low. The courts said that it was necessary to show that the allowance was below the standard or reasonable amount for the functions it was intended to reimburse.
The determination of whether an allowance is reasonable can only be made after reviewing all of the facts. In our view, the reasonableness of a per-kilometer allowance would be based on both the actual business-related expenses of the employee, and the design of the allowance by the employer. For example, if the employee chooses to operate a more expensive car than that contemplated by the employer, or does not operate the vehicle in the most efficient manner for performing the duties of employment, the fact that the allowance does not cover the higher business-related expenses, does not automatically make it an unreasonably low allowance. However, if an employee incurs reasonable business-related motor vehicle expenses that exceeds the amount of the allowance received, the Agency will accept that the allowance is unreasonably low, and allow the employee to include it in income under paragraph 6(1)(b) of the Income Tax Act (the "Act"). The employee would, therefore, be entitled to deduct travel or vehicle expenses under paragraph 8(1)(f) or 8(1)(h.1) of the Act if the other requirements of those provisions are met.
We trust that our comments will be of assistance, and thank you for the opportunity to clarify our position for you.
Yours truly
John Oulton
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch
- 2 -
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2000
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2000
Email this Content