25 January 1988 Income Tax Severed Letter 5-4040 - [880125]

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.

R.B. Day (613) 957-2136

JAN 25 1988

XXXX

We are writing in response to your letter of October 15, 1987, wherein you requested our interpretation of subparagraphs 6(1)(b)(v) and (vii) of the Income Tax Act (the "Act") with respect to the following hypothetical situation.

In order to maintain relatively simple yet complete records of automobile expenses incurred by employees on business related to their employer, the following system would be developed.

1. An employee is to be reimbursed at a rate of X cents per kilometre (to cover the capital cost and maintenance of the vehicle) plus the actual gas and oil consumed on the employer's affairs.

2. The mileage rate would be limited to a maximum annual amount.

3. Monthly the employee would receive a cheque for 1/12 of the annual maximum mileage allowance plus the cost of the actual gas and oil consumed.

4. There will be a monthly expense report submitted which will record the total kilometres driven and the business portion thereof.

5. At the end of each year the total business mileage would be determined from the expense reports. This would be multiplied by the mileage rate.

6. If the total exceeds the annual maximum, no further reimbursement would be made. If the annual maximum exceeds the business mileage, the excess would be considered remuneration.

7. If the total equals or exceeds the annual maximum, it is your view that nothing would be reported as remuneration by virtue of subparagraphs 6(1)(b)(v) and (vii) of the Act.

It would appear that the employees described above are not "employed in connection with the selling of property or negotiating of contracts". The mileage allowance received by the employees could not, therefore, meet the exception set out in subparagraph 6(l)(b)(v) of the Act.

With respect to the application of subparagraph 6(l)(b)(vii) of the Act, paragraph 38(a) of the Special Release to IT-272R

contains the following comments.

"38. Where an employee receives an allowance based on kilometres (miles) for the use of the employee's automobile in the employer's business, the following comments apply:

(a) Since the allowance is not calculated by reference to time spent in travelling by the employee, it does not qualify for exclusion from income under subparagraph 6(l)(b)(vii). However, if the payment is not in excess of a reasonable amount, the Department's practice is to allow the taxpayer. to treat the payment as a reimbursement, in which case no automobile expenses, capital cost allowance, or interest on money borrowed to acquire the automobile may be claimed under paragraph 8(l)(h) or (j) and no amount is included income."

Provided that the number of cents per kilometre is reasonable in the circumstances (taking into account the employer's reimbursement of actual gas and oil expenses paid by employees in connection with their employer's business activities) it is our opinion that the income tax treatment of the mileage allowance, as suggested in 6 and 7 above, would appear to be appropriate.

Is is also our opinion that any reimbursements of gas and oil expenditures that pertain to non-business use of the vehicle will be included in the calculation of the employee's income under paragraph 6(l)(a) of the Act.

Yours truly,

ORIGINAL SIGNED BY

for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch