Principal Issues: [TaxInterpretations translation] In order to determine whether an allowance for travel expenses is reasonable, is it necessary to take into account the depreciation of the employee's vehicle caused by use for employment purposes?
Position: Yes.
Reasons: A reasonable allowance covers all costs related to the use of a vehicle and must recompense for all actual expenses incurred by the taxpayer, including depreciation, financing costs, insurance and fuel costs.
January 26, 2009
XXXXXXXXXX Tax Services Office Headquarters
Audit Division Income Tax Rulings Directorate
Nancy Turgeon, CGA
Attention: XXXXXXXXXX
2008-030390Reasonable allowance for travel expenses
This is further to your email of December 15, 2008 in which you asked our opinion on the reasonableness of a travel expense allowance.
Unless otherwise indicated, all legislative references herein are to the provisions of the Income Tax Act (the "Act").
More specifically, you described a situation where a taxpayer is employed by the Fédération de la Santé et des Services sociaux du Québec. In the course of her employment, she must travel to visit patients in the City of XXXXXXXXXX. For her travels, she receives an allowance of $0.43 per kilometre pursuant to the Directive respecting the Reimbursement of Expenses incurred during Travel and Incidental Expenses (the "Directive") of the Government of Québec's Treasury Board.
You wish to know whether the allowance paid under the Quebec Government's Treasury Board Directive is reasonable. As part of this review, you asked whether such an allowance should take into account depreciation of the taxpayer's vehicle.
Our Comments
Generally, reasonable allowances for the use of a motor vehicle received by an employee for travelling in the performance of the duties of the office or employment are not taxable by virtue of subparagraph 6(1)(b)(vii.1). However, subparagraphs 6(1)(b)(x) and (xi) provide that such an allowance is deemed not to be reasonable:
(x) where the measurement of the use of the vehicle for the purpose of the allowance is not based solely on the number of kilometres for which the vehicle is used in connection with or in the course of the office or employment, or
(xi) where the taxpayer both receives an allowance in respect of that use and is reimbursed in whole or in part for expenses in respect of that use (except where the reimbursement is in respect of supplementary business insurance or toll or ferry charges and the amount of the allowance was determined without reference to those reimbursed expenses);
Where a travel allowance is considered reasonable for the purposes of subsection 6(1)(b), no amount is deductible pursuant to paragraphs 8(1)(h), (h.1) and (j).
In Interpretation 2007-0228521I7, we have already concluded that allowances paid in accordance with the Government of Quebec's Treasury Board Directive were reasonable and therefore non-taxable.
Furthermore, a reasonable allowance covers all costs related to the use of a vehicle and must recompense for all actual expenses incurred by the employee receiving it, such as depreciation, financing, insurance and fuel costs. In this case, if the allowance received by the taxpayer is not sufficient to cover the costs related to the use of the vehicle - with respect to travel in the course of employment - we are of the view that the allowance is not reasonable and that the taxpayer is entitled to the deductions provided for in paragraphs 8(1)(h), (h.1) and (j). It should be noted that the limitations in paragraph 13(7)(g) and sections 67.2 and 67.3 will apply in computing the expenses incurred by the taxpayer.
Access to Information
For your information, unless exempted, 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, the electronic library version can be provided. Alternatively, the client may request a severed copy using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Ms. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.
We hope that these comments are of assistance.
François Bordeleau, LL.B.
Manager
Business and Partnerships Section
Business and Partnerships Division
Income Tax Rulings Directorate.