25 May 1989 Income Tax Severed Letter 5-7566 - [Automobile Allowances and Expense Reimbursements]

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.

XXXX

S. Short (613) 957-2134

MAY 25 1989

Dear Sirs:

Re: Automobile Allowances and Expense Reimbursements

This is in reply to your letter dated February 16, 1989 wherein you have requested clarification on several issues relating to the new automobile rules.

Your interpretation of subparagraph 6(1)(b)(vii.1) of the Income Tax Act (the "Act") is basically sound. Any employer provided automobile allowance which would otherwise be excluded from income by virtue of subparagraph 6(1)(b)(v), (vi) or (vii.1) of the Act is required to be included in the employee's income if the allowance the employee receives is a per kilometre allowance and also receives a reimbursement for any expenses for the same use of the automobile. The inclusion in income results from the fact that the allowance is deemed to be in excess of a reasonable amount pursuant to subparagraph 6(1)(b)(xi) of the Act.

The definition of a reimbursement, as outlined in paragraph 40 of Interpretation Bulletin IT-272R remains unchanged by Tax Reform. Usually a reimbursement is not income in the hands of the employee receiving it unless it represents payment of the employee's personal expense.

With respect to the timing of the receipt of an expense reimbursement, it is our view that, if a reimbursement is in respect of the same use of an automobile for which a per kilometre allowance has been paid to an employee, the per kilometre allowance is required to be included in the employee's income. The key consideration is that the reimbursement pertains to the "same use" and timing of the payment of the reimbursement is not relevant to determining whether the allowance is required to be included in income. The allowance is required to be included in income in the year received by the employee, even if this requires the preparation of an amended T4 because the reimbursement is received by the employee after the year's end.

"In respect of the same use" of a motor vehicle refers to the same business or employment use and not to the same expenses. In your hypothetical situation A, where an employee receives a reasonable per kilometre allowance for the employment use of his vehicle as sole compensation for the first 6 months of the year and reimbursed expenses only for the remaining six months of the year, the allowance received in the first six months would not necessarily be included in the employee's income as it would not be deemed to be "in excess of a reasonable amount" by virtue of subparagraph 6(1)(b)(xi) of the Act. This assumes that the allowance otherwise meets the necessary criteria to be exempt from income.

Subparagraph 6(1)(b)(xi) of the Act would deem the allowance described in your hypothetical situation B to be in excess of a reasonable amount because the employee is in receipt of both an allowance in respect of the use of the motor vehicle and is reimbursed for expenses relating of the same (business) use.

We trust the above comments will be of assistance to you.

Yours truly,

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