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:

Whether the short-term rental of a passenger vehicle, leased by an arm's length person, is considered to be an indirect payment of "all or part of the actual lease charges in respect of a passenger vehicle" for the purposes of section 67.3 of the Act.

Position: Question of fact but, generally, no.

Reasons: Section 67.3 of the Act limits the amount that a taxpayer can claim in respect of the lease cost of a passenger vehicle. Section 67.2 limits the amount that a taxpayer can claim in respect of interest on money borrowed to purchase a passenger vehicle. Section 67.3 does not apply to a vehicle "rented" or "leased" for a short period of time. It is difficult to argue that a short term "rent" or "lease" of a passenger vehicle is an indirect payment of the "actual lease charges" of a taxpayer that has leased a passenger vehicle for use in the ordinary course of carrying on their business of "renting/leasing" passenger vehicles.

		November 24, 2003

	XXXXXXXXXX 	HEADQUARTERS
	Business Enquiries, Client Services	A. Seidel, CMA
	XXXXXXXXXX  Tax Services Office	(613) 957-2058

2003-003204

Cost of Leasing Passenger Vehicles

This is in response to your facsimiles dated July 28 and October 3, 2003, concerning the application of section 67.3 of the Income Tax Act.

Background

1. Self-employed individuals will have access to the use of an automobile for business purposes under an "automobile sharing" program. These individuals must buy a "membership" to participate in the program. The membership can be sold to another individual if it has been held for six months.

2. The program is offered by a company that has bought or leased a fleet of automobiles. These automobiles are located at various locations within a metropolitan area and are made available to the self-employed individuals on an hourly or daily basis.

3. Membership in the program is restricted to individuals over the age of 25 with a valid driver's license and a clean driving record. Members pay an application fee, a membership fee, an access fee and a per trip fee that varies with the length of time that the automobile was used by the self-employed individual.

4. The costs incurred by the self-employed individual are generally deductible in computing income from the business carried on by the individual.

Issue

Does section 67.3 of the Act apply to restrict the amount that the self-employed individual can deduct in computing his/her income from the business for income tax purposes?

Our Comments

Section 67.3 of the Act applies "notwithstanding any other section of the Act" to situations where:

"(a) in a taxation year all or part of the actual lease charges in respect of a passenger vehicle are paid or payable, directly or indirectly, by a taxpayer, and

(b) in computing the taxpayer's income for the year an amount may be deducted in respect of those charges".

Where the short-term "rental/lease" ("Rental") payments are not "actual lease charges" made directly by the self-employed individuals, section 67.3 can only apply if the Rental payments are an indirect payment of the "actual lease charges" of a lessor. Whether or not a Rental is an indirect payment of all or a part of "actual lease charges" of a lessor is a question of fact that can only be determined after a review of each specific situation. Unless it can be clearly shown that a particular payment is in respect of the Rental of a passenger vehicle and hence be considered an indirect payment of the actual lease charges of the lessor who has actually leased the passenger vehicle, it is our general view that a Rental payment in respect of an hourly rental or a daily rental of a passenger vehicle would not normally be considered to be a payment of part of the actual lease charges of the taxpayer who has leased a passenger vehicle.

If, on the other hand, the Rental of a passenger vehicle were for several weeks, or even months, at a time, there is likely a respectable argument that the cost of the Rental is an indirect payment of the lessor's actual lease charges. In such cases, section 67.3 of the Act would apply to restrict the deductibility of the amounts incurred by the self-employed individual.

We hope our comments are of assistance. If you wish to discuss any of the above further, or if we can be of any further assistance, do not hesitate to contact us at the above number.

For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Customs and Revenue Agency's electronic library. 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 electronic library 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 Mrs. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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