14 June 1989 Income Tax Severed Letter 89M06087 F - Car Allowance

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.

CGA ASSOCIATION ROUND TABLE

QUESTION 4

Where the employer pays the operating allowance of a car based on the calculation of business usage and respective operating costs, non-inclusive of CCA, plus a separate allowance for CCA, will the total allowance (operating and CCA) be restricted to the Km rate guidelines established by Revenue Canada?

DEPARTMENT'S POSITION

The employer's deduction fore an allowance paid or payable to an employee for the use of his automobile is restricted to the amount determined by Draft Regulation 7305 except to the extent that the employee is otherwise required to include the amount in income.  Accordingly, the restriction in paragraph 18(1)(r) of the Act depends on whether or not the employee is required to include either of the allowances in income. Assuming that the allowance for CCA is a flat rate amount which is required to be included in the employee's income (since subparagraph 6(1)(b)(x) of the Act deems such an allowance to be in excess of a reasonable amount) and assuming that the operating allowance is a separate allowance which is excluded from the employee's income by virtue of subparagraph 6(1)(b)(v), (vi) or (vii.1) of the Act, paragraph 18(1)(r) would only limit the amount deductible by the employer in respect of the distance-based and excluded from income by virtue of subparagraph 6(1)(b)(v), (vi) or (vii.1), the Department would consider the total amount paid or payable to be one allowance and would apply the restriction in paragraph 18(1)(r) of the Act to the entire allowance.

CGA ASSOCIATION ROUND TABLE

QUESTION 4

Why is the net benefit for the taxpayer on the third and subsequent children greater than for the first and second child?

DEPARTMENT'S POSITION

In his speech of December 16, 1987, to the House of Commons on Tabling the Notice of Ways and Means Motion relating to the implementation of Tax Reform, the Minister of Finance made the following comments:

     "The vast majority of families with children will pay substantially less personal income tax as a result of the White Paper proposals.

     Today I am announcing further improvements to the tax treatment of families with children."

Among the improvements announced was the following:

     "To target additional assistance to larger families, the child credit for the third and each subsequent child in the family is being doubled to $130."

He went on to say:

     "These measures incorporate a number of suggestions from the House Committee on Finance and Economic Affairs. 

     The impact of these measures is to reduce further the taxes paid by families with children. In combination with the new child care initiative announced earlier this month by the Minister of National Health and Welfare, these measures will bring about a major strengthening of tax assistance for Canadian families".