26 June 1995 Internal T.I. 9500886 - AUTOMOBILE OPERATING 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.

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:

Whether the provisions of 6(1)(k) mean that any amounts paid by an employee to a third party not related to the employer for the operating expense of an employer provided automobile will not reduce the operating exepense benefit

Position TAKEN:

third party payments do not reduce the operating expense benefit as paragraph 6(1)(k)(iii) refers only to amounts paid or payable to the employer or a person related to the employer

Reasons FOR POSITION TAKEN:

legislation is unambiguous in this regard (unlike its predecessor 6(1)(a)(iii)).

		June 26, 1995

	Source Deductions Division	HEADQUARTERS
		Sandra Short
	Attention:  J. Ivey	(613) 957-8953
	            Chief, DO/TC Support
		950088

Automobile Operating Expense

This is in reply to your memorandum of January 11, 1995 in which you ask whether we concur with your general opinion that, in accordance with the provisions of paragraph 6(1)(k) of the Act, any amounts paid by an employee to a third party not related to the employer in respect of operating expenses of an employer provided automobile may not be used to reduce the operating expense benefit calculated under that provision of the Act. We apologize for the delay in our response.

The specific example you asked us to consider is that of an employee who pays all of the maintenance and operating expenses related to the use of an employer provided automobile. The employee is later reimbursed by the employer at a rate of 7 cents per kilometre to offset total operating costs. The personal use of the automobile amounts to 10,000 kilometres by the employee with a related operating expense of $400 for that personal use. It is your view that the employee would have to reimburse the employer the full $700 or incur a taxable benefit of $1,200 less any portion reimbursed directly to the employer. This results in the employee being penalized for paying any portion of the operating expense to a third party as this type of payment may not be used to offset the taxable benefit; that is, even though the employee pays a significant portion of the operating expense he or she still has a taxable benefit of $1,200 (10,000 km x 12 cents). Since the total operating expense paid for by the employee is not paid to the employer, the amount cannot be used to reduce the taxable benefit calculated under paragraph 6(1)(k) of the Act.

The payment by an employer of a personal automobile operating cost of an employee, utilizing an employer provided automobile, brings that employee within the application of paragraph 6(1)(k) of the Act. We do not believe that the specific example chosen places the employee within the application of paragraph 6(1)(k) as there does not appear to be any payment by the employer of a personal automobile operating cost. Automobile operating expenses include such items as gasoline, insurance, and maintenance costs none of which have been specifically paid for or reimbursed by the employer in your example. The employee appears to have received an allowance (not a reimbursement) from the employer of 7 cents per kilometre. In our telephone conversation of June 23 (Latourell/Short), you confirmed that the 7 cents per kilometre referred to in your example was to be paid for all kilometres driven by the employee and not only personal kilometres. It would seem in the example given that the allowance would be included in the employee's income by reason of paragraph 6(1)(b) of the Act and specifically through the operation of subparagraph 6(1)(b)(x) and, if the employee otherwise qualifies, an appropriate amount may be deducted under paragraph 8(1)(f), (h), (h.1) or (j) of the Act in respect of the employment related automobile expenses paid.

In circumstances where the conditions in subparagraphs 6(1)(k)(i), (ii) and (iii) are met, the computation set out in the remainder of paragraph 6(1)(k) applies. The legislation does not provide for the use of any alternative calculations in the computation of the operating cost benefit other than the options already described within that provision.

B.W. Dath
Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch