In discussing the situation where an employer limits the number of kilometers travelled by an employee in the course of employment for which it will pay a per-kilometer allowance, e.g., where the employer will stop paying once 10,000 kilometers have been driven in any year, or it does not pay for the first 20 km travelled in each employment-related trip, CRA stated:
In such cases, an allowance may not be high enough in relation to expenses that an employee is expected to incur in a specific situation, and thus not be reasonable. If applicable, the allowance is a taxable benefit that the employee will have to include in employment income in accordance with paragraph 6(1)(b). An employee may, however, if all of the requirements are met, claim the deductions provided in paragraphs 8(1)(h), (h.1) or (j). …
In addition, the CRA has stated…that where an employee elects to include in income the amount of a non-taxable motor vehicle allowance, the taxpayer can deduct the expenses for that vehicle which were actually incurred and which are otherwise deductible on condition that the taxpayer can demonstrate that such expenses are in excess of the allowance in question.
CRA also stated:
An employer is not required to complete or sign Form T2200 for an employee if the employer is of the opinion that the conditions of employment set out in paragraph 8(1)(h.1) or any of the other provisions referred to in subsection 8(10) are not satisfied. However, the CRA expects employers to complete Form T2200 in situations where employees have reasonable grounds to claim a deduction under paragraph 8(1)(h.1) or under the other provisions of section 8 referred to in subsection 8(10).