18 July 2005 Internal T.I. 2005-0130351I7 - Automobile Operating Expense Benefit

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.

Principal Issues: Can employee deduct the cost of motor vehicle operating costs if the vehicle is used for business purposes.

Position: Question of Fact

Reasons: General Information provided

2005-013035 (see 2005-013369)

From: Majerus, Luisa
Sent: July 18, 2005 2:32 PM
To: Goyette, Brenda
Subject: Answers to your questions

Hi Brenda,

RE: Automobile Operating Expenses and Alterations to a Recreational Vehicle ("RV")

This is in reply to your two email requests dated May 12 and May 31, 2005. You have asked for our opinion on two separate issues. First of all, you are concerned that an employee, who uses an employer-owned vehicle for employment related purposes and is required to pay for all of the operating costs of the vehicle, will not be able to deduct these operating costs as an employment expense. Secondly, you are concerned that a disabled taxpayer, who is making alterations to his RV to make the RV wheelchair accessible, will not be able to claim the amount as a medical expense for tax purposes.

Automobile Operating Expenses

As discussed in Interpretation Bulletin IT-63R5 "Benefits, Including Standby Charge for an Automobile from the Personal Use of a Motor Vehicle Supplied by an Employer", for the purpose of paragraph 6(1)(e) of the Income Tax Act (the "Act"), subsection 6(2) of the Act sets out a formula for determining the amount of a reasonable standby charge for an automobile. The standby charge represents the value of the benefit derived by an employee from the personal use and availability of an automobile supplied by an employer and the amount calculated is required to be included in the employee's income for the year. In addition, paragraph 6(1)(k) of the Act includes in income the value of any benefit received by an employee where the employer pays the operating costs of the employer provided automobile. Where the employee is required to pay the operating costs and is not reimbursed by the employer for these costs, paragraph 6(1)(k) will not apply.

Paragraph 8(1)(h.1) provides a deduction for amounts expended by a taxpayer in the year in respect of motor vehicle expenses incurred for travelling in the course of the office or employment if the taxpayer was ordinarily required to carry on the duties of the office or employment away from the employer's place of business and was required under the contract of employment to pay these motor vehicle expenses. The wording in paragraph 8(1)(h.1) does not require that the employee own the motor vehicle in order for the motor vehicle expenses to be deductible.

Accordingly, where an employee benefits from the personal use and availability of an automobile supplied by an employer but pays all of the operating expenses to operate the automobile, the employee will include in income the value of the standby charge benefit but can deduct the motor vehicle expenses incurred provided the employee was ordinarily required to carry on the duties of the office or employment away from the employer's place of business and was required under the contract of employment to pay these motor vehicle expenses.

Modifications to a Recreational Vehicle

Paragraph 118.2(2)(l.2) of the Act provides that, for the purposes of calculating the medical expense tax credit under subsection 118.2(1) of the Act, a medical expense includes an amount "for reasonable expenses relating to renovations or alterations to a dwelling of the patient who lacks normal physical development or has a severe and prolonged mobility impairment, to enable the patient to gain access to, or to be mobile or functional within, the dwelling".

As you provided, a patient, who is eligible for the disability tax credit under subsection 118.3(1) of the Act, has made alterations to an RV to enable him to gain access to the RV. The patient resides in the RV and believes that the alterations should qualify as a medical expense as the RV is his dwelling.

The term "dwelling" is not defined in the Act. The Canadian Oxford dictionary defines "dwelling" as a house or place of residence. In addition, paragraph 17 of our Interpretation Bulletin, IT-119R4 "Debts of Shareholders and Certain Persons Connected", provides that the word "dwelling" includes a house, an apartment in a duplex or apartment building, a condominium, a cottage, a mobile home, a trailer, or a houseboat. It is our view that mobile or motor homes are designed primarily as recreational vehicles to provided a "home away from home".

Accordingly, it is our view that where a patient lacks normal physical development or has a severe and prolonged mobility impairment, reasonable expenses relating to renovations or alterations to an RV, used as a place of residence, to enable the patient to gain access to the RV will qualify as a medical expense for the purposes of subsection 118.2(1) of the Act.

Copies of our Interpretation Bulletins can be found on our website at www.cra-arc.gc.ca .

Luisa A. Majerus, CA
Senior Rulings Officer
Income Tax Rulings Directorate
Policy & Planning Branch
Canada Revenue Agency
(613) 832-3488