The employer, whose nurses used their motor vehicles in the course of their employment, paid its employees an allowance of 0.40$/km, while for any excess kilometres, the employer pays an allowance at the rate of 0.325$/km. However, where the kilometres were lower than 8,000 km, the collective agreement provided for an allowance of $0.40/km for the kilometres travelled as well as an allowance of $0.08/km for the difference between the kilometres travelled and the 8,000 km threshold. After finding that the car allowance should be bifurcated into two allowances: a reasonable non-taxable per-kilometre allowance; and an unreasonable taxable minimum allowance, CRA stated:
Motor vehicle expenses incurred by an employee in the performance of employment duties may be deducted in computing employment income under paragraph 8(1)(h.1). Where an employee receives an allowance for the use of a motor vehicle in a taxation year that is not, because of paragraph 6(1)(b), included in computing the employee's income for the year, no deduction is permitted under paragraph 8(1)(h.1). However, if the employee can demonstrate that the motor vehicle expenses incurred in performing the employment duties exceed the amount of any allowance received and that the allowance is fully included in computing the employee's income (including any portion that may not be taxable because of paragraph 6(1)(b) and any amount for reimbursement of commercial automobile insurance), the CRA will generally allow the deductibility of all motor vehicle expenses incurred in performing the employment duties.
In such circumstances, the employer will have to complete Form T2200 to allow employees to deduct their motor vehicle expenses.