Principal Issues: [TaxInterpretations translation] Are motor vehicle allowances received by an employee for the distance travelled between home and work taxable under paragraph 6(1)(b) of the Income Tax Act (the "Act")?
Position: Yes, since they are personal or living expense allowances. This conclusion is consistent with the jurisprudence and Canada Revenue Agency policy.
Reasons: The Income Tax Act. The jurisprudence.
XXXXXXXXXX 2006-020391
October 3, 2006
Dear Sir,
Subject: Request for technical interpretation - Motor vehicle allowance
This letter is in response to your letter dated September 5, 2006, concerning the tax treatment of certain allowances you receive from your employer for the use of your motor vehicle.
Facts
In your letter, you stated the following facts:
- As part of your work, your employer - XXXXXXXXXX - requires you to be available after hours for periods of five days in cycles of up to five weeks;
- During those periods, your employer occasionally requires you to travel to your place of work to respond to service calls;
- When responding to such calls, you must use your personal vehicle to get to your workplace;
- In such cases, your employer's administrative policy provides for the payment of an allowance of $0.52 per kilometre travelled;
Question
In the light of the above facts, you wish to know whether the allowances paid by your employer should be included in your income for the year in which they are received.
Analysis
Paragraph 6(1)(b) provides that all amounts received by the taxpayer in the year as an allowance for personal or living expenses or as an allowance for any other purpose are to be included in the income of the recipient. One of the exceptions to that paragraph is subparagraph 6(1)(b)(vii.1) which reads as follows
6(1)(b) - all amounts received by the taxpayer in the year as an allowance for personal or living expenses or as an allowance for any other purpose, except
[…]
(vii.1) reasonable allowances for the use of a motor vehicle received by an employee (other than an employee employed in connection with the selling of property or the negotiating of contracts for the employer) from the employer for travelling in the performance of the duties of the office or employment,
[...]
In the Daniels1 decision of the Federal Court of Appeal case, a municipal councillor argued that the per-kilometre allowances received from the county for travel expenses incurred in attending council meetings from his principal residence should not be included in his income. Specifically, he relied on subparagraph 6(1)(b)(vii.1), as reproduced above.
In dismissing the taxpayer's appeal, Justice Desjardins wrote as follows:
It is well established that travel expenses incurred by a taxpayer in travelling to and from his home to his place of work are considered personal expenses. They are not travelling costs encountered in the course of the taxpayer's duties. Rather, they enable him to perform them… .
Paragraph 14 of Interpretation Bulletin IT-522R reiterates this position by stating that "[t]ravelling between the employee's home and the place of employment is personal travel and the portion of the expenses relating to this travel is not deductible.” A copy of that bulletin is attached to this letter.
In order for allowances received by a taxpayer for the use of a motor vehicle to fall within the exception in subparagraph 6(1)(b)(vii.1), the travel must generally be for one of two purposes:
- travel expenses incurred by the taxpayer in travelling from one place of work to another; or
- travel expenses incurred in the performance of the taxpayer's duties.
In this case, based on the facts you have provided us with, we are of the view that the travel expenses incurred when responding to calls for service are personal in nature. Furthermore, they are not travel between two places of work or travel in the performance of your duties; they are simply for the purpose of performing your duties once you have arrived at your place of work. Consequently, allowances paid by your employer for the use of your motor vehicle in those circumstances must be included in your income for the year in which you receive them.
We hope that our comments are of assistance.
Best regards,
François D. Bordeleau, LL.B.
Individuals, Business and Partnerships Section
Income Tax Rulings Directorate
Encl.
ENDNOTES
1 2004 FCA 125, confirmed [2003] T.C.J. No. 790