12 October 1995 External T.I. 9519385 - Deductibility of automobile insurance-pleasure

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 business portion of vehicle insurance premiums which are paid at the "pleasure use" rate are deductible.

Position TAKEN:

Yes.

Reasons FOR POSITION TAKEN:

The deductibility of vehicle operating costs which includes insurance are restricted to the extent that the expenses are supportable and not unreasonable. The Act does not appear to distinguish between classes of expenses, ie. private vs commercial licence and business vs pleasure insurance.

L. Barrows
XXXXXXXXXX		951938

Attention: XXXXXXXXXX

October 12, 1995

Dear XXXXXXXXXX:

Re: Deductibility of Automobile Expense - Insurance Costs

This is in reply to your letter of July 24, 1995 in which you asked for our opinion respecting the deductibility of "pleasure use" passenger vehicle insurance premiums from self-employed business income. You also indicated that the vehicle is, in fact, used partly for business and that the taxpayer maintains a driving log for the purpose of allocating expenses between business and personal use.

Since your enquiry appears to relate to an actual situation where a particular approach is being contemplated, your request should properly be the subject matter of an advance income tax ruling. Please refer to Information Circular No. 70-6R. Nevertheless, we are prepared to provide the following general comments which are, in no way, binding on this Department.

Comments

Interpretation Bulletin IT-521 (the "Bulletin"), a copy of which is enclosed, discusses the deductibility of motor vehicle expenses claimed by self-employed individuals. Paragraph 3 of the Bulletin states that where a motor vehicle is used by an individual partly to earn business income and partly for personal use the amount deductible is the proration of the business miles travelled to the total miles travelled applied to the total of the total operating expenses, capital cost allowance and interest. Paragraph 5 of the Bulletin defines the term operating expenses to include, among other things, the cost of fuel, licences and insurance. The deductibility of the business portion of these expenses and/or amounts are restricted to the extent that they are supportable (receipts available) and are not unreasonable by virtue of section 67 of the Act. On the basis of these restrictions, the Act does not appear to distinguish between various classes of expenses, for example, a private vs commercial licence or business vs pleasure insurance, for deduction purposes.

We trust these comments will be of assistance to you.

Yours truly,

R. Albert
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

Enclosure