Principal Issues: [TaxInterpretations translations]
Is a kilometerage allowance taxable if there is a minimum daily amount?
Position:
Probably not taxable in the situation submitted.
Reasons:
Not taxable if minimum amount was nominal based on actual use and is established to compensate the employee for expenses incurred for the use of his vehicle in the performance of the employment duties.
May 7, 2007
Trust Accounts Division Headquarters Income Tax Rulings Directorate Attention: Ms. Lorraine Maisonneuve Nancy Turgeon, CGA
2007-022852
Travel allowance
This letter is in response to your fax of March 23, 2007 regarding the above subject. You wish to know whether the travel expense allowance that Quebec civil servants receive under the "Directive on reimbursable expenses during travel and other related expenses” ["Directive sur les frais remboursables lors d'un déplacement et autres frais inhérents"] issued by the Quebec Treasury Board is taxable, given that it provides for a minimum daily allowance in certain circumstances.
Unless otherwise indicated, all statutory references herein are to provisions of the Income Tax Act.
The auditor is of the view that a mixed allowance is being paid, i.e., part of it is a fixed amount, the minimum allowance, and the other part is calculated on a per-kilometre basis for the same use. Consequently, the allowance falls under subparagraph 6(1)(b)(x).
The taxpayer's representative is of the view that the minimum allowance received by an employee while travelling near the employee’s home base is indeed an allowance based on kilometers and not a fixed allowance. In addition, he states that an employee who does not travel is not entitled to that minimum amount. In support of his position, the representative cited interpretations 2001-008249 and 2003-003222.
OUR COMMENTS
Generally, a reasonable allowance received by an employee for the use of a motor vehicle in the performance of the duties of the employee's office or employment is not taxable by virtue of because of subparagraph 6(1)(b)(vii.1). However, subparagraphs 6(1)(b)(x) and (xi) deem such an allowance to be unreasonable in the following circumstances:
(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);
In our opinion, to have a mixed allowance, the employee must, in addition to receiving an allowance based on a rate per kilometre, receive other compensation for the same use of the employee’s vehicle. On reading the directive you have submitted to us, we are of the view that the employee receives either an allowance based strictly on the kilometres driven or a minimum daily payment if the distance driven, when multiplied by the kilometerage allowance, is less than the minimum amount. It appears that in no case, barring administrative errors, will an employee receive more than one daily allowance or receive both a minimum daily allowance and a kilometre-based allowance.
Consequently, it is necessary to determine whether the fact that the Directive provides for a minimum amount for each day of use in the vicinity of the employee's home base allows for a conclusion that the use of the vehicle is not, for the purpose of determining the allowance, assessed solely on the basis of the number of kilometres travelled by the employee in the performance of the employment duties.
In the technical interpretations cited by the representative, we have taken the position that, to the extent that a kilometerage allowance otherwise satisfies the conditions of subparagraph 6(1)(b)(vii.1), an employee should not suffer adverse tax consequences simply because the employee receives a daily minimum amount. That position is based on the fact that the minimum amount was nominal based on actual use and was established to compensate the employee for expenses incurred for the use of the employee’s vehicle in the performance of employment duties. In our view, that determination is essentially a question of fact.
However, in the present situation, we are of the view that unless you can show that the minimum amount is not nominal based on the use, the allowance paid would not be taxable.
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
Louise J. Roy, CGA
Interim Manager
Business and Partnerships Section
Business and Partnerships Division
Income Tax Rulings Directorate