12 January 1990 Income Tax Severed Letter AC58562 - Automobiles Allowances

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.

19(1)

                                             5-8562
                                             G. Ozols
                                             957-2139

JAN I2 1990

Dear Sirs:

Re: Automobile Allowances

This is in reply to your letter of August 22, 1989 wherein you requested a ruling as to the tax treatment of certain automobile allowances paid under the terms of your various collective agreements.

Please be advised that there is a fee charged for advance income tax rulings. Furthermore, advance rulings will be given only in respect of proposed transactions. Since it appears that the transactions in this case (i.e. the collective agreements) have already been completed, we are unable to provide you with an advance ruling. Also, without seeing a copy of the collective agreements and-the actual wording used therein, we cannot express an opinion with any certainty. However, we can provide you with a non-binding opinion as to the probable tax treatment to be accorded to the two types of automobile allowances you have described. As we understand it, your collective agreements provide that where the employer determines that an employee must have available an automobile for business purposes, such employee will be reimbursed for the use of his own vehicle, when on authorized municipal business, at the current reimbursement rate of 32.1 cents per kilometre. However, the minimum payment for such employees.will be $60 per month.

You have asked for our confirmation that the actual reimbursement in any given month, based on business kilometres, is not a taxable benefit and that the difference between the $60 minimum and the reimbursement based strictly on business kilometres is an allowance and therefore is to be reported as a taxable benefit under the Income Tax Act (the "Act").

It is our position that a reimbursement for automobile expenses that is calculated on a per kilometre basis or a flat rate basis or on any other basis other than actual, proven expenses is in fact an allowance. Such an allowance is included in income, subject to certain exceptions, by virtue of paragraph 6(1)(b) of the Act.

The first exception that would apply to automobile allowances is provided for in subparagraph 6(1)(b)(v) of the Act, which exempts from income reasonable allowances for travelling expenses received by an employee from his employer in respect of a period when he was employed in connection with the selling of property or negotiating of contracts for his employer.

The second exception for automobile allowances is subparagraph 6(1)(b)(vii.1) of the Act which exempts allowances (not in excess of reasonable amounts) for the use of a motor vehicle received by an employee (other' than an employee employed in connection with the selling of property or negotiating of contracts for his employer) from his employer for. travelling in the performance of the duties of his office or employment.

However, under subparagraph 6(1)(b)(x) of the Act, a motor vehicle allowance is deemed to be in excess of a reasonable amount where the measurement of the use of the vehicle for the purpose of the allowance is not based solely on the number of kilometres for which the motor vehicle is used in connection with or in the course of his office or employment. Therefore, as stated in paragraph 43 of Interpretation Bulletin IT-522 (copy enclosed), unless this condition is met the whole amount of the allowance is included under paragraph 6(1)(b) of the Act in computing the employee's income. Where an employee receives the minimum amount of $60 per month because the actual kilometres travelled for business use would otherwise only entitle him to a lesser amount, the allowance cannot be said to be based solely on the number of business use kilometres and therefore the entire amount must be included in income. An employee receiving more than $60 because he has driven the sufficient number of business use kilometres would not have to include any portion of the allowance in his income, provided the allowance is not otherwise in excess of a reasonable amount. Where an employee receives the minimum amount for any month because of insufficient kilometres driven, he must include in his income all monthly amounts received in the calendar year. Only those employees who drive the sufficient number of kilometres in each month to receive more than the $60 minimum will be allowed to exclude from income the allowance received for the calendar-year.

Finally, when the allowance is included in the employees income, if the employee otherwise qualifies, an appropriate amount may be deductible for expenses under paragraph 8(l)(f), (h) or (3) of the Act, depending on the circumstances, as discussed in paragraphs 3l through 39 of IT-522 .

We trust the above is of assistance to you.

Yours truly,

for Director Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch