6 November 1989 Ministerial Correspondence 58404 F - Automobile Allowances and Expenses Received by Elected Officials

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.

Dear Sirs:

Re:  Subsection 81(3) of the Income Tax Act (the "Act") and Automobile Allowances and Expenses Received by Elected Officials

This is in reply to your letter of July 19, 1989 wherein you asked several questions relating to the taxation of certain elected officials given the following fact situation:

1.     There is no deeming provision in the Municipal Act of Ontario stating that a proportion of remuneration to an elected member is an allowance for expenses.

2.     The officials receive a non-accountable automobile allowance in the amount of $3,600 per annum.

3.     The automobile allowance received is in addition to the base remuneration received by the officials from the municipality.  Base remuneration is approximately $30,000 per annum.

4.     Each elected official is also reimbursed for certain specific expenses which are incurred in the course of carrying on his or her duties but such specific expenses do not include expenses which relate to the ownership or operation of an automobile.

We will address your questions seriatim.

1.     You have asked whether the amount to include in income is $22,400 (which is 2/3 of $30,000 plus 2/3 of $3,600), in accordance with section 5 and subsection 81(3) of the Act and paragraph 7 of interpretation bulletin IT-292.  Where there is no deeming provision in the relevant legislation of a province (we have accepted your statement that no deeming provision exists), the Department will consider one third of the total of salaries, fees, non accountable allowances and travelling allowances (as discussed in paragraph 3 of IT-292) to be an expense allowance and two thirds to be salary or other remuneration, unless the expense allowance actually paid is less than one third of the total received this actual amount will be used. Accordingly, it would appear that the entire amount of the $3,600 allowance is excluded from income by virtue of subsection 81(3) of the Act but that the $30,000 base remuneration is fully taxable as salary under subsection 5(1) of the Act.  This would be so as the expense allowance actually paid ($3,600) is less than one third of the total received ($33,600).

2.     We are not in a position to state that no amount is to be included in the elected official's income pursuant to paragraph 6(1)(b) of the Act.  It is not clear to us what the $3,600 allowance represents.  While a reimbursement of travelling expenses incurred in the performance of the duties of an office or employment is usually not income in the hands of the employee, this is not the case where the reimbursement represents the payment of personal expenses. If, for example, the $3,600 or a portion thereof is meant to compensate the elected officials for their travelling costs to and from work (council meetings, the Courthouse, etc.) then the $3,600 allowance or applicable portion thereof is a taxable benefit pursuant to paragraph 6(1)(b) of the Act.

3.     An elected official may deduct actual travelling expenses if he meets all of the criteria of paragraph 8(1)(h) of the Act and the expenses are reasonable in the circumstances.  We cannot determine whether any particular elected official may qualify based solely on the comments in your correspondence. This would be a finding of fact that would best be answered by your local district taxation office.  We would best be answered by your local district taxation office.  We would, however, refer you to interpretation bulletin IT-522.  Also, in this regard, we refer you to our comments under 7.

4.     Where a deduction under paragraph 8(1)(h) of the Act may be made, then a deduction in respect of the relevant capital cost allowance and interest expense under paragraph 8(1)(j) of the Act is permissible.

5.     If an automobile is acquired after June 17, 1987 or if deemed to be acquired (by virtue of paragraph 13(7)(b) of the Act) after June 17, 1987, then section 67.2 of the Act will limit the interest to an amount not exceeding $250 multiplied by the quotient obtained when the number of days in the year in respect of which the interest was payable if divided by thirty.  Paragraph 13(7)(b) of the Act, which states the change in use rules, deems a property to have been acquired at the "later date".  If this later date is after June 17, 1987 then the restriction in section 67.2 of the Act applies.

     We have enclosed a photocopy of the Department of Finance release dated August 14, 1989 entitled Revised limits concerning capital cost allowance, deductible lease costs, and tax exempt allowances in respect of motor and passenger vehicles for you.

6.     Section 67.3 of the Act restricts the amount that may be deducted by a taxpayer in respect of an automobile leased under a lease entered into, extended or renewed after June 17, 1987.  An automobile leased prior to June 18, 1987 is not affected by section 67.3 of the Act.  This is true even if a lease entered into prior to June 18, 1987 was for personal use purposes and the automobile is subsequently (after June 17, 1987) used for business or employment purposes.

7.     We are of the opinion that, if a taxpayer meets all the conditions of paragraph 8(1)(h) and subsection 8(10) of the Act, he is entitled to a deduction for travelling expenses and a deduction as permitted by paragraph 8(1)(j) of the Act, notwithstanding that he has received an allowance that is exempt by virtue of subsection 81(3) of the Act.

     We would point out, however, that an allowance of a municipal officer is received by him because of his position and is meant to cover expenses incident to the discharge of his duties.  It is not on account of any specific duties he may perform, such as attending a convention or travelling on municipal business for which he is usually reimbursed.  As a result, a claim for travelling expenses under paragraph 8(1)(h) of the Act is seldom warranted.  If, for some reason, a deduction under paragraphs 8(1)(h) and 8(1)(j) of the Act is justifiable, then the deduction need not be reduced by the amount of the non-taxable allowance received by the elected official.

We trust that the above comments are of assistance to you.

Yours truly,

for Director Business and General DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch