31 July 2012 External T.I. 2012-0442381E5 - 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: Whether an employee is entitled to deduct motor vehicle expenses on a per kilometre basis?

Position: No.

Reasons: The CRA does not allow an employee to deduct motor vehicle expenses on a per kilometre basis.

XXXXXXXXXX
2012-044238
C. Underhill

July 31, 2012

Dear XXXXXXXXXX:

Re: Motor Vehicle Expenses

We are writing in response to your email of April 3, 2012, concerning motor vehicle expenses. More specifically, you have enquired whether an employee is entitled to deduct from their employment income motor vehicle expenses computed on a per kilometre basis.

In the situation you described, an employee is entitled to a reimbursement for mileage from their employer based on the number of kilometres driven for employment. You have indicated that the employee has failed to track the vehicle’s total kilometres driven in the year. However, the employer completes Form T2200, Declaration of Conditions of Employment, for the employee and reports the kilometres driven in the course of employment and the total reimbursement received by the employee.

Paragraph 6(1)(b) of the Income Tax Act requires that a taxpayer include in employment income all amounts received by virtue of an office or employment as an allowance for personal or living expenses, subject to certain exceptions described in the legislation. One such exception is a reasonable motor vehicle allowance paid by an employer to an employee for traveling in the course of performing the duties of employment. Generally, an allowance is non-taxable when it is based solely on a reasonable per-kilometre rate.

If it is determined that the motor vehicle allowance received is unreasonable, the employee may include the allowance in income and claim a deduction for the motor vehicle expenses incurred in the course of carrying out his/her employment duties. Where an employee uses a motor vehicle for employment and personal use, the employee can deduct the expenses related to earning employment income. Only motor vehicle expenses that are reasonable and supported by receipts may be deducted. Motor vehicle expenses based on a fixed kilometre rate may not reflect the actual expenses incurred by the employee and would not be supported by receipts. For further information on allowable motor vehicle expenses, please refer to Guide T4044, Employment Expenses.

The best evidence to support the employment use of a vehicle is an accurate logbook of employment travel maintained for the entire year, showing for each trip, the date, the destination, the reason for the trip and the distance covered. An employee must be able to support the expenses claimed. For alternative records to support a claim, please go to www.cra.gc.ca/whtsnw/lgbk-eng.html.

We trust these comments will be of assistance.

Yours truly,

Nerill Thomas-Wilkinson
Manager
for Director
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch