Principal Issues: Can an operating expense benefit be reduced by the operating expenses paid by the employee directly to third parties within the time frame specified in the legislation?
Position: Yes
Reasons: This approach is administratively acceptable.
May 26, 2008
Saskatoon TSO HEADQUARTERS Income Tax Rulings Attention: Angela Taylor, Appeals Division Directorate Renée Shields (613) 957-2049
2008-027407
Reduction of paragraph 6(1)(k) Automobile Operating Expense Benefit
This is in response to your electronic correspondence regarding the application of paragraph 6(1)(k) of the Income Tax Act (the "Act") and in particular the determination of the reduction available pursuant to variable "B" in the formula contained therein..
You referenced a situation in which, by virtue of subsection 15(5) of the Act, a shareholder is subject to a benefit calculated in accordance with paragraph 6(1)(k) of the Act. An automobile operating expense benefit calculated under paragraph 6(1)(k) of the Act will be reduced by the total operating expenses paid in the year, or within 45 days after the end of the year, by the individual taxpayer (or by a related person) to the employer (or, in the case of a shareholder, to the corporation conferring the benefit). In the situation you describe, the individual paid various operating expenses directly to the parties levying such charges.
You have referred to Technical Interpretation 9507005 which states that operating expenses paid to third parties unrelated to the employer will not reduce the operating expense benefit calculated pursuant to paragraph 6(1)(k) of the Act. This results in an operating expense benefit that exceeds the actual benefit enjoyed by the taxpayer. We have reviewed the position expressed in Interpretation 9507005 and confirm that we consider it administratively acceptable to consider payments to third parties as amounts eligible to reduce the operating expense benefit.
We trust that these comments will be of assistance.
For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the electronic library version, or they may request a severed copy using the Privacy Act criteria, which does not remove client identity. You should make requests for this latter version to Mrs. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.
Renée Shields
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch