22 October 2013 External T.I. 2013-0492901E5 - Motor vehicle - allowances & 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: 1. Whether the comments in technical interpretation 9211550 continue to reflect CRA's position? 2. Do the comments in technical interpretation 9211550 apply to this case?

Position: 1. Yes. 2. Question of fact, in this case no.

Reasons: Technical interpretation 9211550 still reflects the CRA's position. The facts of this case are different.

XXXXXXXXXX
2013-049290
C. Underhill

October 22, 2013

Dear XXXXXXXXXX:

Re: Motor vehicle allowances & expenses

We are writing in response to your letter of June 10, 2013, concerning the tax consequences under the Income Tax Act ("Act") of an employer-provided motor vehicle. More specifically, you asked whether the comments provided by the Canada Revenue Agency ("CRA") at the May 1992 Tax Executive Institute Conference regarding automobile benefits and expenses ("technical interpretation 9211550") continue to reflect CRA's position.

In the situation described, an employer leases motor vehicles and rents them to employees who use them in the performance of their employment duties. The motor vehicles are automobiles as defined in subsection 248(1) of the Act. The rental fee paid by the employees is equal to the employer's cost to lease the automobile plus the cost of insuring the vehicle. The employee pays all other costs associated with operating the leased vehicle. The employees are required to provide on-site technical services to customers and are paid at a piece-rate for each task performed at a service call. A portion of each piece-rate is designated as an "allowance" to compensate the employees for the cost of using the vehicle. The terms of the rental agreement provide that employees are only to use the vehicle for employment-related purposes. The employees usually travel directly from home to a particular work location, between customer locations, between a customer location and the employer's warehouse, and from the work location to home.

This technical interpretation provides general comments about the provisions of the Act and related legislation. It does not confirm the income tax treatment of a particular situation but is intended to assist you in making that determination. The income tax treatment of transactions will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, Advance Income Tax Rulings.

Our Comments

Payments by the employer to the employee

Technical interpretation 9211550 provides comments regarding a scenario where an employer enters into a leasing arrangement with a leasing company and then either subleases the vehicle to an employee at cost or assigns the lease to the employee. In technical interpretation 9211550, the employer agreed to pay the employee an amount equal to the subleasing charges and the employee assigned this amount back to the employer in payment of the sublease charges. For clarification purposes, technical interpretation 9211550 provides that:

* Where an employer has made a motor vehicle available to an employee, that is an automobile as defined in subsection 248(1) of the Act, a standby charge and operating benefit will arise under paragraphs 6(1)(e) and (k) of the Act for the personal use;
* Where the amount paid by an employer to an employee is a reimbursement of the sublease charged by the employer, the payments between the employer and the employee will be ignored for the purpose of applying the standby charge. In these circumstances, the amount paid by the employer to the employee will not be included in the employee's income; and
* An employee may be entitled to deduct motor vehicle expenses for employment-related travel provided the amounts are reasonable and the conditions in paragraph 8(1)(h.1) and subsection 8(10) of the Act are met.

The positions taken in technical interpretation 9211550 were based on a specific fact situation and continue to reflect CRA's position provided the facts are substantially the same. Based on the facts in technical interpretation 9211550, it was determined that the amount paid to the employee as a reimbursement offset the amount paid by the employee for the sublease charges. The offsetting payments put the employee in the same position as he or she would have been in, had the employer not charged the employee for the lease and not provided the employee with the reimbursement.

A reimbursement is generally a payment to an employee for specific amounts spent on the employer's business. Where an employee is required to submit receipts or otherwise show the employer how the amount was spent, the amount is considered to be a reimbursement even if the employer calls it an allowance. A reimbursement, as opposed to an allowance, is generally included in an employee's income if the reimbursement is for a personal expense, results in an economic advantage or benefit to the employee, or the employer is not the primary beneficiary. In the current situation described, the amount paid to the employee would not be considered a reimbursement because it is not for a specific expense incurred by the employee. Unlike the facts in technical interpretation 9211550, the payments between the employer and employee do not offset each other. Therefore, the payment to the employee would likely not be excluded from the employee's income.

Generally, an amount paid by an employer to an employee is taxable as employment income under subsections 5(1) or 6(1) of the Act. Subsection 5(1) of the Act provides that an individual's income from an office or employment includes the salary, wages, and other remuneration, including gratuities, received by the individual in the year. Even where a portion of a piece-rate earned by an employee is designated for expenses incurred for the use of a motor vehicle in the employer's business, it is our view that such portion should be included in the employee's income under subsection 5(1) of the Act.

Standby charge and operating benefit

The benefit arising from the personal use and availability of an employer-provided automobile is included in an employee's income under paragraphs 6(1)(e) and (k) of the Act. To the extent there is personal use of the employer-provided automobile, paragraph 6(1)(e) of the Act will include a standby charge benefit in the employee's income. Where an employer pays for the operating costs of the automobile and a standby charge benefit is included in the employee's income, an operating expense benefit will arise under paragraph 6(1)(k) of the Act. Whether an employee uses an employer-provided automobile for personal travel is a question of fact.

It is the CRA's long-standing position that travel between an employee's home and his or her regular place of employment is personal travel. In this regard, any location at which the employee regularly reports for work or performs the duties of employment is considered a regular place of employment for that employee. Whether an employee regularly reports for work at a particular location is a question of fact requiring a review of all the relevant facts of each case. An employee who reports to work at a particular site for an extended period of time will likely be considered to regularly report to work at such location.

Where an employer requires an employee to proceed directly from home to a point of call other than the employee's regular place of employment or to return home from such a point, these particular trips are not considered to be personal travel. As well, travel directly from one work location to another work location is considered to be employment-related travel.

If an employee uses the employer-provided automobile for personal travel and it is determined that part of the rental fee paid by the employee includes an amount for operating costs, then that portion would reduce the operating expense benefit, if any. The remaining portion of the rental fee would reduce the standby charge benefit.

Motor vehicle expenses

Generally, an employee may deduct motor vehicle expenses where it is established that the expenses are for employment-related travel and the conditions under paragraph 8(1)(h.1) and subsection 8(10) of the Act are met.

We trust these comments will be of assistance.

Yours truly,

Nerill Thomas-Wilkinson, CPA, CA
Manager
for Director
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch