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: 1) How should an employer complete Questions 1 & 2 on the T2200?
2) Can the employee forego the employer's motor vehicle allowance and instead claim the deduction under paragraph 8(1)(h.1)?
Position: 1) If the employee is regularly required to travel between the employer's two places of business, during the course of the workday, then Question 2 on form T2200 should be answered in the affirmative. The answer to Question 1 on Form T2200 will depend on whether the employee is entitled to a reasonable allowance for motor vehicle expenses incurred for employment purposes.
2) If the employer's motor vehicle allowance is reasonable, no.
Reasons: 1) Subparagraph 8(1)(h.1)(i) requires that the employee be ordinarily required to travel to different places to carry out employment duties. This means that only if the travel to the employer's different business locations during the course of the workday is a normal occurrence, would this condition be met. Working a couple of days as week in one office and a couple of days a week in the other office, and travelling from home to each such location would not satisfy this requirement.
2) If the employer offers a reasonable allowance for motor vehicle expenses incurred by an employee in the performance of employment duties, then it cannot be said that the employee is required to pay for such expenses. As such, the requirement in subparagraph 8(1)(h.1)(ii) would not be met and the employee would not be entitled to claim a deduction in respect of motor vehicle expenses.
XXXXXXXXXX Renée Shields
November 9, 2006
Dear XXXXXXXXXX :
Re: Employee Motor Vehicle Expense Deduction
This is in response to your letter of May 10, 2006 posing several questions about the completion of Form T2200, "Declaration of Conditions of Employment" and the availability of an employee motor vehicle expense deduction.
You have described a scenario in which an employer has two places of business in the XXXXXXXXXX area, one in XXXXXXXXXX and one in XXXXXXXXXX . A particular employee works at both locations and uses her own car for transportation. The employer makes a motor vehicle allowance available, at a per-kilometre rate somewhat less than that contained in the Income Tax Regulations (the "Regulations"). The employee in question has never made a claim under the employer's motor vehicle allowance program.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, "Advance Income Tax Rulings." Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office, a list of which is available on the "Contact Us" page of the Canada Revenue Agency ("CRA") website at http://www.cra-arc.gc.ca. Although we cannot comment on your specific situation, we are prepared to provide the following general comments, which may be of assistance.
Generally, paragraph 6(1)(b) of the Income Tax Act (the "Act") requires that all amounts received by an employee in the year as an allowance for personal or living expenses or as an allowance for any other purpose be included in computing income for the year. There are a number of exceptions to this general rule. Specifically, subparagraph 6(1)(b)(vii.1) of the Act exempts from income reasonable allowances for the use of a motor vehicle received by most employees who travel for employment purposes.
Whether an allowance is reasonable for purposes of subparagraph 6(1)(b)(vii.1) of the Act is a question of fact. As a general rule, an employer can use the prescribed rates in section 7306 of the Regulations. It is important to note, however, that other rates can also be considered reasonable depending on the circumstances. We generally take the view that an allowance is reasonable if it covers the out-of-pocket costs incurred by an employee in using a personal motor vehicle while travelling for employment purposes.
In terms of the deductibility of motor vehicle expenses incurred while travelling for employment purposes, subparagraph 8(1)(h.1) of the Act will generally provide a deduction for such expenses if certain conditions are met. Specifically:
- The employee must be ordinarily required to carry on his or her employment duties away from the employer's place of business or in different places (a requirement of subparagraph 8(1)(h.1)(i) of the Act);
- The employee must be required under his or her contract of employment to pay the motor vehicle expenses incurred in performing the duties of employment (a requirement of subparagraph 8(1)(h.1)(ii) of the Act);
- The employee must not have received a motor vehicle allowance from his or her employer that was not included in income because of paragraph 6(1)(b) of the Act (a requirement of subparagraph 8(1)(h.1)(iii) of the Act); and
- The employee must not have claimed a deduction for sales expenses of a commission employee pursuant to paragraph 8(1)(f) of the Act (a requirement of subparagraph 8(1)(h.1)(iv) of the Act);.
The first condition above, ties in with your question regarding the proper manner of completing Question 2 on Form T2200. In order to satisfy this condition, the employee must normally be required to travel either to locations that are not the employer's place of business, or between an employer's different locations of business. In the scenario you described, only if the employee normally works at both the XXXXXXXXXX and XXXXXXXXXX offices during her workday and has to travel between them would this requirement be met. If, on the other hand, she works a couple of days a week at one location and a couple of days a week at the other, her travel between home and each such location on any given day would not satisfy this condition. The facts of her particular situation will determine how you would complete the T2200.
The answers to your two remaining questions depend largely on whether the motor vehicle allowance provided by the employer is considered to be reasonable, which as explained previously, is always a question of fact. As outlined above, the second condition to be eligible for a motor vehicle expense deduction is that the employee is required to pay such expenses. Where an employer makes a reasonable motor vehicle allowance available, it cannot be said that the employee is required to pay such expenses. In this case, an employer should respond to Question 1 on the T2200 in the negative.
Where an employee chooses to forego an employer's reasonable motor vehicle allowance, he or she would not meet the "obligation to pay" condition in subparagraph 8(1)(h.1)(ii) of the Act and would not be entitled to claim a deduction. However, where an employee receives an allowance, it is our general position that if an employee can show that the employment-related motor vehicle expenses are in excess of the allowance and voluntarily includes the amount of the allowance in income, the CRA will permit the deduction if the requirements in section 8 of the Act are otherwise met.
We trust the foregoing comments will be of assistance.
Business and Personal Section
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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, 2006
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, 2006