27 October 1989 Ministerial Correspondence 58274 F - Automobile 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.

October 27, 1989

Dear 19(1)

Re:  Automobile Allowances

Your letter of January 20, 1989, concerning the taxation of automobile allowances paid to various employees of your company has been referred to us for reply.  We apologize for the delay in response.

As discussed on July 5, 1989, 19(1)  Humenuk), we are unable to provide the requested ruling because advance income tax rulings are only given in respect of proposed transactions as indicated in paragraph 6 of the attached Information Circular 70-6R.  Nevertheless, we are prepared to offer an opinion on the application of the relevant provisions of the Income Tax Act (the Act) based on the facts as presented in your letter.

Facts

The facts of the situation as we understand them can be summarized as follows:

24(1)

The Department's Position

Generally, an automobile allowance paid to an employee will be excluded from income if:

(i)      the allowance is not in excess of a reasonable amount (subparagraph 6(1)(b)(vii.1) of the Act) or in the case of an employee employed in connection with selling property or negotiating contracts for his employer, is a reasonable amount (subparagraph 6(1)(b)(v) of the Act);

(ii)      the allowance is based solely in the number of kilometres the vehicle is used to earn employment income (subparagraph 6(1)(b)(x) of the Act) and

(iii)      the employee is not reimbursed for any expense for the same use (kilometres) for which the employee is paid a travel allowance (subparagraph 6(1)(b)(xi) of the Act).

As the allowances described in your submission for salesmen and management are not based on the number of kilometres for which the motor vehicle is used in the course of employment, the allowances are required to be included in income.

Similarly, the fixed monthly amounts received by systems analysts and service technicians are required to be included in income.  However, provided that the distance based allowance is a separate allowance from the fixed amount and otherwise meets the criteria discussed in (i)-(iii) above, it is our view that the kilometre based allowance would be excluded from income.  However, whether or not an allowance is reasonable involves a finding of fact to be determined on the basis of all the circumstances of a particular case including the fact that more than one allowance is being paid to the employee in respect of the same use of the automobile.

Tax deductions at source are required in respect of the taxable allowances.  A copy of Interpretation Bulletin IT522 which discusses the subject, is enclosed.

We trust our comments will be of assistance to you.

Yours truly,

for Director Business and General DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch

AH/da

Enclosure

c.c.   TORONTO DISTRICT OFFICE