27 April 1990 Ministerial Correspondence 58514 F - Reimbursement of Automobile Expenses

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.

April 27, 1990

Dear Sirs:

Re: Reimbursement of Automobile Expenses

This is in reply to your letter of August 16, 1989, wherein you requested our confirmation of your understanding of the tax implications to employees of  24(1)  in receipt of an allowance for the use of their automobiles. We apologize for the delay in replying.

It is our understanding that your situation may be summarized as follows:

24(1)

Whether a particular allowance is in excess of a reasonable amount or not is a question of fact. Although an allowance based on the 31 cents/25 cents per kilometre rate specified in draft Regulation 7305 may be considered reasonable in many situations, it is our view that the actual costs incurred by an employee should be taken into consideration in determining what would be a reasonable rate for the allowance. However, the Department considers that, generally, an allowance based on the rates outlined in draft Regulation 7305 are representative of a reasonable per kilometre allowance for the purposes of subparagraph 6(1)(b)(vii.1) of the Income Tax Act (the "Act") provided the employee is not also in receipt of a reimbursement in whole or in part for expenses in respect of the same use.

Concerning 24(1) it is our view that this represents an allowance for the use of the vehicle which is not based solely on the number of kilometres for which the vehicle is used in connection with or in the course of the employee's office or employment and as such is required to be included in the employee's income.

The reimbursement 24(1) pays to an employee for the incremental cost of purchasing supplementary business insurance is, in our view, not considered to be a taxable benefit and need not be reported by the employee for tax purposes. However, we advise that as a result of 24(1) paying this reimbursement to the employee, subparagraph 6(1)(b)(xi) of the Act deems the per kilometre allowance received by the employee to be in excess of a reasonable amount as the employee has also been reimbursed in part for the same use of a motor vehicle. As a result, the 24(1) received as an allowance must be included in income pursuant to paragraph 6(1)(b) of the Act. We also advise that the employees would be permitted to deduct "travelling expenses" pursuant to paragraph 8(1)(h) of the Act provided they otherwise qualify.

We wish to point out that the Department of Finance has been made aware of the potential impact these situations may present.

We trust our comments will be of assistance to you and we enclose for your information a copy of IT-522 entitled "Vehicles and other Travelling Expenses - Employees".

Yours truly,

for DirectorBusiness and General DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch