21 January 2010 Income Tax Severed Letter 2009-0339891E5 - Deduction of motor vehicle expenses

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.

SUMMARY: Deduction of motor vehicle expenses—ITA-8(1)(h.1)—Deductibility of motor vehicle expenses where an employee reports for work at more than one location.

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.

PRINCIPAL ISSUES: Deductibility of motor vehicle expenses where the employee reports for work at more than one location.

POSITION: General comments only.

REASONS: Question of fact.

XXXXXXXXXX 2009-033989

Michael Cooke, C.A.

January 21, 2010

Dear XXXXXXXXXX:

Re: Deductibility of Motor Vehicle Expenses

We are writing in response to your correspondence of September 8, 2009, concerning the deductibility of employment-related motor vehicle expenses under paragraph 8(1)(h.1) of theIncome Tax Act(the “Act”).

Briefly, in your correspondence you indicate that you are a corporate trainer for XXXXXXXXXX (the “Employer”) and that such training takes place at the various retail store locations. You also indicate that you also perform certain administrative duties at your home and/or at the retail store locations and that you generally do not report for work at the Employer's regional office.

You ask whether motor vehicle expenses incurred for travel between your home and the various retail store locations would be deductible.

Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, “Advance Income Tax Rulings”, dated May 17, 2002. Where the particular transactions are completed, such as the case in your situation, the inquiry should be addressed to the relevant Canada Revenue Agency (“CRA”) Tax Services Office (“TSO”). A list of TSOs is available on the “Contact Us” page of the CRA's website as well as copies of any publications mentioned herein. Notwithstanding the foregoing, we are prepared to offer the following comments.

It is the CRA's long-standing position that travel between an employee's home (including where an employee maintains a home office) and his or her regular place of employment (“RPE”) is personal travel. Accordingly, any motor vehicle expenses incurred for such travel would not be deductible. However, where an employee (as required by the employer or with the employer's concurrence) proceeds directly from home to a point of call other than the employee's RPE, or returns home from such a point, such travel is considered employment-related.

A particular work location is considered to be an employee's RPE if it is a location at or from which the employee regularly reports for work or performs the duties of employment. For instance, an employee who reports to work at a particular site for an extended period of time will likely be considered to regularly report to work at such location. On the other hand, even though an employee may change locations on a frequent basis, it will also be relevant to consider whether such employee reports for work at a particular location more than once, and the frequency of such returns. If an employee does return to a particular location with any degree of frequency or regularity then generally the CRA would consider that location to be the employee's RPE. Moreover, an employee can have more than one RPE at the same time, or the employee's RPE can change from time to time, because of the nature of the particular employment situation. As such, it remains a question of fact as to whether an employee would be considered to have one or more RPE.

We recognize that some recent informal Tax Court of Canada decisions have held that travel between an employee's home or home office and an employer's business location may be employment-related travel. However, each of these cases was very fact specific. Moreover, since section 18.28 of theTax Court of Canada Actstates that informal Tax Court of Canada decisions are not to be treated as a precedent for any other case, the CRA's general position on travel between an employee's home or home office and an employer's business location remains unchanged.

Where it can be established that an employee's motor vehicle expenses are in respect of employment-related travel, such expenses might be deductible under paragraph 8(1)(h.1) of the Act. However, where an employee receives any motor vehicle allowance during a taxation year that was, because of paragraph 6(1)(b) of the Act, not included in computing the employee's income for that year, no deduction may be claimed.

Notwithstanding the above, if an employee can show that the employment-related motor vehicle expenses are in excess of the motor vehicle allowances that were not included in the employee's income because of paragraph 6(1)(b) of the Act (i.e., the allowances are unreasonable relative to the employee's “out-of-pocket” costs) and voluntarily includes the amount of all such allowances in income, the CRA will generally permit the deduction where the other requirements of section 8 of the Act are otherwise met.

We trust our comments will be of assistance.

Yours truly,

Renée Shields

for Director

Business and Partnerships Division

Income Tax Rulings Directorate

Legislative Policy and Regulatory Affairs Branch