15 August 2000 Internal T.I. 2000-0027727 - AUTO EXP.&MOTOR VEHICLE ALLOW.

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: Can an employee include a motor vehicle allowance in income and claim automobile expenses?

Position: An employee in receipt of a motor vehicle allowance that is unreasonably low can include the allowance in income and claim expenses if he or she otherwise qualifies

Reasons: Consistent with previous opinions.

		August 15, 2000

	GST/HST Rulings and Interpretations	HEADQUARTERS
	   Directorate	Wayne Antle
	General Operations Unit 	(613) 957-2058

	Attention: Douglas Wood
		2000-002772

Reasonable Motor Vehicle Allowances

We are writing in response to your letter of May 23, 2000 concerning whether an employee in receipt of a motor vehicle allowance can choose to include this allowance in income and claim motor vehicle expenses.

Subparagraph 6(1)(b)(vii.1) of the Income Tax Act (the "Act") excludes from employment income a reasonable allowance for the use of a motor vehicle received by an employee, other than a commission sales employee, for travelling in the performance of the duties of office or employment. Subparagraphs 6(1)(b)(x) and (xi) of the Act impose a further qualification by deeming not to be reasonable, any allowance that is not based exclusively on a per kilometre basis for the employment-related use of the vehicle, or any allowance that is provided in conjunction with a reimbursement in respect of the employment-related use of the vehicle (other than the reimbursement of supplementary business insurance and toll/ferry charges not already included in those allowances).

Paragraph 8(1)(h.1) of the Act allows an employee to deduct motor vehicle expenses where the employee is required to travel away from the employer's place of business or in different places; is required, under the contract of employment, to pay such expenses; is not claiming the expenses as commission sales expenses under paragraph 8(1)(f); and is not in receipt of a tax-exempt motor vehicle allowance. Therefore, an employee who receives a motor vehicle allowance that is excluded from income under paragraph 6(1)(b)(vii.1) of the Act would not be permitted to deduct motor vehicle expenses under paragraph 8(1)(h.1) of the Act.

In general terms, the reasonableness of any particular allowance referred to in subparagraphs 6(1)(b)(v), (vi), or (vii.1) is a question of fact. The Agency generally takes the view, for income tax purposes, that any allowance that is intended or designed to cover the employee's out-of-pocket costs to use the vehicle in the course of performing the duties of employment would be a reasonable allowance. In order to claim motor vehicle expenses pursuant to paragraph 8(1)(h.1) of the Act, the employee would need to show that the allowance received in total is unreasonable. Where the employee's total expenses for business use in a year exceed the total travel allowance received in that year, the Agency will accept that the allowance is not reasonable. Accordingly, the allowance would be included in the employee's income, and the employee would be permitted to deduct motor vehicle expenses provided that the requirements of paragraph 8(1)(h.1) of the Act are otherwise met, and the expenses are reasonable..

We trust that our comments will be of assistance

John Oulton, C.A.

Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

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