19 July 1994 External T.I. 9403725 - AUTOMOBILE OPERATING EXPENSE BENEFITS

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Automobile Allowance - Taxable Benefits

Position TAKEN:

Where an automobile has been made available to an employee for the entire year and the employer pays the operating expenses related to the automobile at any time during the year, the entire year would be the period to which the calculation outlined in subparagraph 6(1)(k)(v) of the Act refers.

Reasons FOR POSITION TAKEN:

Interpretation of Legislation as it reads.

		940372
XXXXXXXXXX	D. Zion

Attention: XXXXXXXXXX

July 12, 1994

Dear Sir\Madam:

Re: Paragraph 6(1)(k) of the Income Tax Act

We are writing in response to your letter of February 8, 1994, in which you requested our views regarding the application of the above noted provision in the calculation of the operating expense benefit for employees. We apologize for the delay in responding.

In the comments that follow, unless otherwise stated, all statute references are to the Income Tax Act S.C. 1970-71-72, c.63 as amended, consolidated to June 10, 1993 (the "Act").

You wish to know if it is the Department's view that the "period or periods" referred to in subparagraph 6(1)(k)(ii) of the Act is:

1)"the period or periods in the year during which the automobile was made available to the taxpayer", or

2)the period or periods during which the automobile was made available to the taxpayer and also during which amounts related to the operation (otherwise than in connection with or in the course of the taxpayer's office or employment) of the automobile were paid by the employer or a person related to the employer.

You have provided a hypothetical situation where, in a taxation year, an employee who has the use of an employer provided automobile initially has all operating expenses related to the automobile paid by the employer. Later in the year, the employer ceases to pay the operating expenses and, instead, pays a reasonable, per business kilometre, non-taxable allowance pursuant to paragraph 6(1)(b) of the Act. You ask what would be the "period or periods" for the purposes of the calculation of the operating cost benefit pursuant to paragraph 6(1)(k).

Our Comments

Paragraph 6(1)(k) of the Act applies where an employer or a person related to the employer pays for automobile operating expenses relating to the personal use of an automobile by an employee for 1993 and subsequent taxation years.

In our view, The "period or periods" referred to in subparagraph 6(1)(k)(ii) of the Act are the "period or periods in the year that the automobile was available to the taxpayer ...". Thus, in your hypothetical situation, where the automobile has been made available to the employee for the entire year and the employer pays the operating expenses related to the automobile at any time during the year, the entire year would be the period to which the calculation outlined in subparagraph 6(1)(k)(v) of the Act refers.

It may be more beneficial to the employee that other available provisions of paragraph 6(1)(k) of the Act be utilized if the circumstances of a particular case warrant their use. For instance, if the automobile in question is used primarily in the course of the employee's office or employment, the employee can, pursuant to paragraph 6(1)(k)(iv), elect the operating expense benefit to 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. Alternatively, in accordance with subparagraph 6(1)(k)(iii) of the Act, no taxable benefit would result if the employee was to fully reimburse the payor for all operating expenses, including applicable provincial sales tax and Goods and Services Tax, attributable to personal use within 45 days after the end of the year.

We trust our comments will be of assistance to you.

Yours truly,

P.D. Fuoco
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch