6 November 1989 Administrative Letter 58396 F - Automobile Allowances

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.

November 6, 1989

Dear Sirs:

Re:  Automobile Allowances

This is in reply to your letter dated July 14, 1989, wherein you have requested an interpretation of subparagraph 6(1)(b)(v) and paragraph 18(1)(r) of the Income Tax Act (the "Act") in connection with the following situation:

A commission based employee receives an automobile allowance that is in excess of 27 cents for the first 5,000 kilometres and 21 cents for the remaining kilometres.  You have stated, however, that the allowance is reasonable in amount.  You have asked whether the employer, who does not want to be denied a deduction because of the provisions of paragraph 18(1)(r) of the Act, may reflect the portion of the allowance that is in excess of the 27/21 cent limitation in the employee's income on his T4 information slip for the year.  You have further queried whether the employer can then obtain a full deduction in respect of the full amount of the allowance paid.

For the purposes of our reply, we have assumed that the automobile allowance is in respect of expenses incurred by the employee in the performance of the duties of his employment.  We have also accepted that the amount of the allowance, although in excess of the 27/21 cent amount, is reasonable in the circumstances.

By virtue of subparagraph 6(1)(b)(v) of the Act, a reasonable allowance for travelling expenses received by an employee from his employer in respect of a period when he was employed in connection with the selling of property or negotiating of contracts for his employer, is excluded from employment income.

Where the allowance is reasonable in amount, neither the employer nor the employee have the choice of optionally including the allowance partially or in full in the employee's income.  Where the automobile allowance is not required to be included in income, the employer is restricted by the provisions of paragraph 18(1)(r) of the Act, to a deduction of 27 cents for the first 5,000 business kilometres and 21 cents in respect of the remaining business kilometres.  Thus, in the above circumstances, the employer is not able to obtain a full deduction in respect of the entire automobile allowance paid where the allowance paid is reasonable in amount.

On August 14, 1989 the Department of Finance announced new limits in respect of leasing costs and exempt kilometre allowances.  We have enclosed a photocopy of the release for you.

We trust the above comments are of assistance to you.

Yours truly,

P.D. Fuocofor DirectorBusiness and General DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch