Principal Issues: Whether nominal amounts paid to the employee for each client's house visited for gas and laundry expense are considered taxable benefits and whether the amounts are deductible for the employer.
Position: The amounts paid to the employee are not taxable benefits and are deductible for the employer.
Reasons: Where an employee is reimbursed for actual expenses incurred in connection with the duties of employment and the amount is nominal, the amount is generally not a taxable benefit. The payments made by the employer are considered incurred for the purpose of gaining or producing business income.
XXXXXXXXXX 2005-015009 Kathryn McCarthy, CA February 21, 2006
Dear XXXXXXXXXX,
Re: Motor Vehicle Gas and Laundry Expense
We are writing in response to your letter of July 3, 2005, concerning the above-noted issue. We apologize for the delay in our response.
You described a situation where pairs of individuals employed by a company visit 5 to 6 houses a day in order to provide a cleaning service. The employer provides a vehicle to these employees for use in performing their duties of employment. A standby charge and operating cost benefit are included on the employees' T4 in relation to the personal use of the vehicle. The drivers of the vehicles pay all the gas expenses and incur expenses to launder all of the cleaning cloths at their homes. You inquired as to whether amounts paid to each driver by the employer of $1.25 for gas and 35 cents for laundry per house visited are considered taxable benefits pursuant to the Income Tax Act (the Act). Further, you inquired whether the amounts paid by the employer are deductible for the employer under the Act.
Our Comments
Generally, allowances such as those described above are included in employment income as a taxable benefit under paragraph 6(1)(b) of the Act. However, where an employee is reimbursed for actual expenses incurred in connection with the duties of employment and the amount is nominal, the amount is generally not a taxable benefit. In our view, given that the amounts received by the drivers per household visited are nominal in nature, it is reasonable to conclude that the payments represent an actual reimbursement of employment related expenses and are therefore not a taxable benefit.
We would like to note that for the above tax treatment to apply, the driver must not claim any employment expenses for the vehicle or other employment expenses, including in respect of the laundry. Further, our position is based on the fact that the payments are nominal and should they increase, our views could differ. Finally, the payments made by the employer are considered incurred for the purpose of gaining or producing business income and are therefore deductible.
We trust our comments will be of assistance to you.
Yours truly,
Randy Hewlett
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch