1993 External T.I. 9325585 F - Automobile Expense Benefit

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.

XXXXXXXXXX

932558

Attention:  XXXXXXXXXX

January 7, 1994

Dear Sirs:

RE:  Subsection 6(1)(k) -Automobile Expense Benefit

We are writing in response to your letter of September 3, 1993, wherein you requested our views regarding the application of section 6(1)(k) of the Draft Legislation issued by the Department of Finance in August, 1993 dealing with proposed amendments to the Income Tax Act (the "Act") and relating to the above subject matter. We also refer to our telephone conversation of December 8, 1993 (Charest/Larochelle). We apologize for the delay in providing a response.

In your letter you describe a situation where the employer pays for some of the operating expenses (i.e. insurance cost and repairs) and the employee pays for other operating expenses, namely gasoline and plates, in respect of the employer-provided vehicle. Based on this fact you would like to know if a taxable benefit would result and if the benefit could be calculated under the proposed paragraph 6(1)(k) of the Act and accordingly would be reported for tax purposes to Revenue Canada in the appropriate manner.

It is your view that, under the above circumstances, an employer would be required to compute a taxable benefit with respect to the personal use of the vehicle as provided for in the new paragraph 6(1)(k) of the Act at 12 cents per personal kilometre driven without any regards to the expenses paid by the employee. Your conclusion is based on the fact that the payments made by the employee with respect to operating costs are not considered reimbursements made to the employer and as such, are not recognized in this new provision.

As you are aware new paragraph 6(1)(k), which when enacted will apply to the 1993 and subsequent taxation years, provides a simple formula for determining the operating expense benefit of an employee where an automobile is provided to the employee or a person related to the employee by the employer or a person related to the employer and operating expenses are paid by the employer or a person related to the employer.

If, in the circumstances of a particular case, the automobile in question is used primarily in the course of the employee's office or employment, the employee can elect that the operating expense benefit be one-half of the standby charge for the automobile as determined under subparagraph 6(1)(e)(i) of the Act, less any reimbursements to the payor in respect of operating expenses. The employee must, however,inform the employer in writing by the end of a year of the employee's intention to have this election apply for that year.

Where the employee is not eligible to make, or does not make, the above election, the amount of the benefit in respect of the operation of the automobile is determined by reference to the number of kilometres driven for personal use during the period in the year in which the automobile is made available by the employer or a person related to the employer. For 1993 and subsequent taxation years, the automobile operating expense benefit of such an employee shall be determined as the prescribed amount (presently proposed at 12 cents) for every such kilometre driven, less any reimbursements to the payor in respect of operating expenses.

Subject to the above comments regarding an automobile used primarly for business purposes and the proposed amendment being enacted in its present form we agree with your interpretation of new paragraph 6(1)(k) and the consequential amendment to subparagraph 6(1)(a)(iii) of the Act.

We trust our comments are of assistance.

Yours truly,

J.A. Szeszyckifor DirectorBusiness and General Division

Specialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch