15 January 1992 Income Tax Severed Letter 241

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Subject: PERSONAL OR LIVING EXPENSES REASONABLE CAR ALLOWANCE Section(s): 6(b)(vii.1), 6(1)(b)(x), 6(1)(b)(xi)]

913213
R.B. Day
(613) 957-2136

XXX

January 15, 1992

Dear XXX:

We are writing in reply to your letter of November 11, 1991, wherein you requested our views on the interpretation of subparagraph 6(1)(b)(vii.1) of the Income Tax Act (the Act), relative to subparagraphs 6(1)(b)(x) and (xi) of the Act and the hypothetical situation set out in your letter.

As we understand it, a Canadian-Controlled Private Corporation as defined in paragraph 125(6)(b) of the Act, employs both a husband and wife, the husband being the sole shareholder of the corporation.

Both individuals use their own motor vehicles in the performance of their respective duties. They are not reimbursed, in whole or in part, by the corporation for the expenses they might incur with respect to the operation of their vehicles in connection with their corporate employment. They are not required, as part of their duties, to sell property or negotiate contracts on behalf of the corporation. The corporation pays directly for the proportionate amount of the operating costs of their vehicles that relate to their employment activities.

In addition to the above, the corporation pays both husband and wife a “per kilometre” allowance for the use of their respective vehicles in connection with their employment duties with the corporation.

Since neither employee is in receipt of a reimbursement for operating costs, it is your view the allowance received by the employees would not be included in their respective incomes by virtue of subparagraphs 6(1)(b)(vii.1), (x) and (xi) of the Act.

Our Comments

From the limited information set out in your scenario, we are uncertain as to the mechanism whereby the corporation would be in a position to pay directly only the “proportionate amount of operating costs” of the motor vehicles. If, for example, the operating costs for these vehicles are charged in total to the corporation by the use of a corporate credit card, then we would assume that the personal use portion of those costs would either be reimbursed directly to the corporation by the employees, or would be included in the employees' income as a taxable benefit under paragraph 6(1)(a) of the Act. In any event, as stated in paragraph 53 of IT-522, the payment of the operating expenses in this manner would not be considered to be a “reimbursement”.

Before it can be determined whether or not the provisions in subparagraphs 6(1)(b)(x) and (xi) of the Act (as amended by subsection 3(4) of Bill C-18) will deem the per kilometre allowance not to be a reasonable allowance, it must be determined as to whether or not the per kilometre allowance is a reasonable allowance(s) for the use of a motor vehicle for purposes of subparagraph 6(1)(b)(vii.1) of the Act (as amended by subsection 3(3) of Bill C-18). Since in this scenario the corporation would be paying all operating costs related to employment activities and a per kilometre allowance with respect to those same employment duties, it would involve a finding of fact as to whether or not the employees would be in receipt of a reasonable allowance for purposes of subparagraph 6(1)(b)(vii.1) of the Act.

In view of the foregoing, we are unable to give you a definitive reply to your enquiry.

Should your scenario relate to actual taxpayers and a factual situation, you may wish to approach the appropriate district taxation office for their views in this regard.

We trust our comments will be of assistance to you.

Yours truly,

J. Szeszycki
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch