17 October 2008 External T.I. 2008-0266301E5 - Deductibility of motor vehicle expenses

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: Deductibility of motor vehicle expenses for certain employees.

Position: Question of fact but in this case they don't appear to be deductible.

Reasons: The law. Amounts are for personal travel.

XXXXXXXXXX  						Michael Cooke
								2008-026630
October 17, 2008

Dear XXXXXXXXXX :

Re: Employment Expenses - Motor Vehicles

We are writing in response to your correspondence of December 28, 2007, wherein you requested our views on the deductibility under the Income Tax Act (the "Act") of motor vehicle expenses incurred by XXXXXXXXXX ("Employees") working XXXXXXXXXX . The Employees are members of the XXXXXXXXXX (the "Union"). We understand that the XXXXXXXXXX (the "Association") and the Union have jointly submitted this technical interpretation request.

A brief summary of the facts as we understand them is as follows:

The Association is a non-profit association of employer members ("Employers") that provides a variety of services to its members including payroll services. The Employers currently employ or, when they originally applied for membership, did employ individuals in the XXXXXXXXXX industry. The Employers maintain facilities at the various XXXXXXXXXX where workers report for work, change, wash and eat. The Employees typically work for a number of Employers in any given week or throughout the year.

The Employees telephone the Union dispatch office daily to indicate their availability for work and, if work is available, are advised where and when to report for work. The Employees generally travel directly to the work sites from their homes. The greatest distance between any two XXXXXXXXXX is approximately XXXXXXXXXX kilometres. Under the terms of the collective agreement, they are paid a standard hourly rate for any time spent travelling to and from the particular work site (typically at XXXXXXXXXX the regular hourly rate). The collective agreement also provides for the payment of a travel allowance. The travel allowance is not determined on a per-kilometre basis even though it is loosely based on the travel distance from the Union's office in XXXXXXXXXX to the particular work site. The travel allowance is not included on the T4 slips that are issued by the Association. The Employers are invoiced by the Association for the cost of any labour used. Regardless of the number of Members a XXXXXXXXXX may work for during a particular week, each Employee receives one consolidated weekly pay cheque and one T4 reporting slip for all work performed for the various Employers during the year.

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 request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we offer the following comments.

Our Comments

Motor vehicle expenses incurred in performing employment duties may be eligible for a deduction pursuant to paragraph 8(1)(h.1) of the Act provided certain conditions are met. Specifically, the taxpayer must be ordinarily required to carry on the duties the office or employment away from the employer's place of business or in different places. Furthermore, to be able to deduct an amount under this provision the employee must not be in receipt of a non-taxable allowance or be otherwise reimbursed for such expenses. These requirements give rise to several concerns in the context of the situation you have described.

Motor vehicle expenses incurred for personal travel are not deductible. The courts and the CRA generally agree that travel between an employee's home and the place of regular employment is personal, irrespective of the distance travelled. Furthermore, a person can have more than one regular place of employment. We would consider that the XXXXXXXXXX and the facilities located there constitute regular places of employment for the Employees. This means that travel between an Employee's home and his or her place of employment on that particular day would be personal travel (i.e. such travel is not in performance of the duties of the office or employment). Accordingly, it is our view that most of the Employees would not be able to deduct motor vehicle expenses under paragraph 8(1)(h.1) of the Act in respect of this travel.

You have indicated that on occasion, Employees might be required to shift from one site to another after having reported for work. Such travel would be considered to be employment-related and reasonable motor vehicle expenses would be eligible for a deduction provided all other conditions described above are met.

As noted above, the Employees are paid an allowance for their travel from home to their places of employment. The allowances are not reported on a T4 and it appears likely that the Employees are not including these amounts in income. We have a couple of comments in this regard.

In order for a motor vehicle allowance to be exempt from tax, subparagraph 6(1)(b)(x) of the Act states that it must be based "solely on the number of kilometres for which the vehicle is used in connection with or in the course of the office or employment." Because the allowance described above is not based on the distance actually travelled by the Employee, it does not satisfy this requirement and would therefore have to be included in income. Moreover, even if the amount of the allowance was computed solely by reference to the number of kilometres for which the vehicle was used, where the allowance is paid for personal travel, it must be reported by the Association on the Employee's T4 slip (with appropriate source deductions) as a taxable benefit under paragraph 6(1)(a) of the Act.

The CRA's views on the deductibility of these and other types of employment-related expenses are more fully described in Interpretation Bulletin IT-522R, Vehicle, Travel and Sales Expenses of Employees. This publication and other CRA publications may be accessed at our website at: http://www.cra-arc.gc.ca.

While we regret that our views could not have been more favourable we trust our comments will be of assistance.

Renée Shields
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch