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:
Are reasonable allowances for the use of a motor vehicle in connection with the duties of an office or employment that are based on a per-kilometer rate for travel outside the metropolitan area and a flat rate for travel inside the metropolitan area taxable benefits?
Position:
The amount based upon a per-kilometer rate for travel outside of the metropolitan area is not taxable if the requirements of paragraph 6(1)(b) of the Act are otherwise met. The amount based upon a flat rate for travel within the metropolitan area is deemed not to be reasonable by virtue of paragraph 6(1)(b)(x) of the Act since it is not based solely on the number of kilometers for which the vehicle is used in connection with or in the course of the office or employment, and therefore it is a taxable benefit.
Reasons:
The amounts are separate allowances; the tax implications would be determined independently.
September 26, 2001
Mr. John Sitka HEADQUARTERS
Excise & GST Randy Hewlett, B.Comm.
16th Floor, Place de Ville 613-957-8973
2001-009577
Motor Vehicle Allowance
We are writing in response to your memorandum dated August 1, 2001, wherein you requested our opinion on whether motor vehicle allowances paid to employees by their employer would be considered taxable benefits where they are based on a per-kilometer rate for business travel outside the metropolitan area in which the business is located and a flat rate for business travel within the metropolitan area.
Subparagraphs 6(1)(b)(v), (vi) and (vii.1) of the Income Tax Act (the Act) provide that reasonable allowances received by an employee from the employer for the use of a motor vehicle in the performance of the duties of the office or employment are not included in income. Subparagraph 6(1)(b)(x) of the Act deems an allowance not to be reasonable where the measurement of the use of the vehicle is not based solely on the number of kilometres for which it is used in connection with or in the course of the office or employment.
In addition to the requirements of subparagraph 6(1)(b)(x) of the Act, an allowance will not be considered reasonable if, after reviewing all of the facts, it is determined that the allowance is not based upon actual business-related expenses of the employee. Paragraph 41 of IT-522R, Vehicle, Travel and Sales Expenses of Employees, dated March 29, 1996, describes our position on what may constitute an unreasonable allowance.
In regard to your specific inquiry, where an employee receives reasonable allowances that are based upon a per-kilometer amount for business travel outside the metropolitan area in which the business is located and a flat rate amount for business travel within the metropolitan area, each allowance is considered separately. As a result, if the amount based upon a per-kilometer rate for business travel outside the metropolitan area meets the requirements of subparagraphs 6(1)(b)(v), (vi) and (vii.1) of the Act, it would not be included in income. Further, the amount based upon a flat rate for business travel within the metropolitan area is deemed not to be reasonable by virtue of subparagraph 6(1)(b)(x) of the Act since it is not based solely on the number of kilometers for which the vehicle is used in connection with or in the course of the office or employment, and therefore taxable.
For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Canada Customs and Revenue Agency's mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of a taxpayer.
John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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