22 January 2009 External T.I. 2008-0300671E5 - Monthly flat rate fee for clergy 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: Whether a set flat rate fee paid to clergy member may be excluded from income under subparagraph 6(1)(b)(vi)

Position: No

Reasons: Paragraphs 6(1)(b)(x) and 6(1)(b)(xi) deem amounts to be unreasonable for the purposes of 6(1)(b)(vi).

XXXXXXXXXX 							2008-030067
								Rob Ferrari
(613) 957-2138
January 22, 2009

Dear XXXXXXXXXX :

Re: Flat rate monthly payment for clergy member's vehicle expenses

This is in response to your correspondence of November 17, 2008 with respect to the above noted matter.

In the circumstances you have described, a church employs a clergy member and pays to him a flat rate monthly amount for vehicle expenses he incurs in carrying out the duties of his position. You have asked whether these payments may be excluded from his income pursuant to subparagraph 6(1)(b)(vi) of the Income Tax Act (the "Act").

Our Comments

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.

Subparagraph 6(1)(b)(vi) of the Act excludes from income "reasonable allowances received by a minister of clergyman in charge of or ministering to a diocese, parish or congregation for expenses for transportation incident to the discharge of the duties of that office or employment".

One of the requirements of subparagraph 6(1)(b)(vi) of the Act is that the allowance must be reasonable. Paragraph 42 of Interpretation Bulletin IT-522R, Vehicle, Travel and Sales Expenses of Employees, indicates subparagraph 6(1)(b)(x) of the Act deems a motor vehicle allowance not to be reasonable if it is not based solely on the number of kilometres for which the vehicle is used in connection with or in the course of performing the duties of employment. Further, an allowance is also deemed not to be reasonable by virtue of subparagraph 6(1)(b)(xi) of the Act if the employee receives both an allowance in respect of the use of the vehicle and is reimbursed in whole or in part for expenses in respect of that use (except where the reimbursement is in respect of supplementary business insurance or toll or ferry charges and the amount of the allowance was determined without reference to those reimbursed expenses).

Since the monthly payment to the clergy member is not based solely on the number of kilometres the vehicle is used for employment purposes, the payment would be required to be included in his income. Further information on travel expenses paid to employees may be found in paragraphs 40-49 of IT-522R, posted on the Canada Revenue Agency's website at: http://www.cra-arc.gc.ca/E/pub/tp/it522r/README.html.

It should also be noted that where such payments are required to be included in income, a deduction may be claimed for eligible vehicle expenses. Further information on eligible employment expense deductions may be found in paragraphs 31-38 of IT-522R as well as in guide T4044, Employment Expenses available at http://www.cra-arc.gc.ca/E/pub/tg/t4044/README.html.

We trust that these comments will be of assistance.

Yours truly,

Gwen Moore
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch