21 November 2001 Internal T.I. 2001-0106087 - MOTOR VEHICLE ALLOWANCES

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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues: An employer is contemplating the payment of an allowance to its employees based on the number of kilometres driven in respect of the use of pick-up trucks owned by the employees. The allowance will exceed the rate per kilometre set out in section 7306 of the Income Tax Regulations. Will paragraph 18(1)(r) of the Act apply to restrict the employer's deduction in respect of the allowance?

Position: Question of fact.

Reasons: A pick-up truck may or may not be an automobile.

		November 21, 2001

	XXXXXXXXXX  Tax Services Office	HEADQUARTERS
	XXXXXXXXXX 	Jacques E. Grisé
	VECR - Large Case 	957-2059

2001-010608

Mileage Rate Calculations

This is in reply to your e-mail of October 5, 2001, requesting our views on the income tax consequence of an employer paying an allowance for kilometres driven that exceeds the amount determined in section 7306 of the Income Tax Regulations (the Regulations).

A large forestry company is proposing to request qualifying employees to provide their own off-road motor vehicles and keep off-highway kilometre logs for reimbursement by the company. The motor vehicles to be used are pick-up trucks with seating of no more than three including the driver. The specialized pick-up trucks are costly and expensive to maintain due to rough off-highway use. The company has done a business case on this and appears to be supporting a cost to its employees of $XXXXXXXXXX per kilometre for off-road kilometres.

Paragraph 18(1)(r) of the Income Tax Act (the Act) restricts the amount that may be deducted by a taxpayer in respect of amounts paid or payable as an allowance for the use by an individual of an automobile to an amount determined in accordance with prescribed rules, unless the amount so paid or payable is required to be included in computing the individual's income. The restriction in paragraph 18(1)(r) of the Act only applies to an allowance in respect of the use of a motor vehicle that meets the definition of "automobile" in subsection 248(1) of the Act. An allowance paid or payable for a motor vehicle that does not fall within the definition of "automobile" will be subject to other provisions of the Act, such as, section 67 that requires an outlay or expense to be reasonable in the circumstances.

Whether or not a motor vehicle of a type commonly called a pick-up truck meets the definition of "automobile" in subsection 248(1) of the Act or falls within the exceptions in that definition is a question of fact. One of the factors to be established is the use of the vehicle in the taxation year in which it is acquired. A pick-up truck that is used primarily for personal driving in the taxation year in which it is acquired would fall within the definition of "automobile" in subsection 248(1) of the Act.

Generally, an allowance received by an employee is subject to tax unless it falls within the exceptions listed in subparagraph 6(1)(b)(i) to (ix) of the Act. In order to be excluded from income by virtue of subparagraph 6(1)(b)(v), (vi) or (vii.1) of the Act, the allowance for the use of a motor vehicle must be reasonable. The reasonableness of an allowance is a question of fact. Although the prescribed limits in section 7306 of the Regulations are generally accepted as reasonable, those limits are not considered to define the term "reasonable". We generally take the view, for income tax purposes, that an allowance that is designed to cover an employee's out-of-pocket cost to use a vehicle in the course of performing the duties of employment would be a reasonable allowance.

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 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 the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version, or they may request a copy severed using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Jackie Page at 613 957-0682. A copy will be sent to you for delivery to the client.

John Oulton, CA
Manager
Business and Individual Section
Business and Partnerships Division
Income Tax Rulings Directorate

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