Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
April 20, 2001
XXXXXXXXXX
Dear XXXXXXXXXX:
I am replying to your letter addressed to the Honourable Paul Martin, Minister of Finance, regarding the concerns of your constituents with respect to allowances received by employees for the use of a motor vehicle for employment purposes. Mr. Martin sent me a copy of your letter on March 8, 2001.
The Income Tax Act provides that a reasonable allowance for the use of a motor vehicle received by an employee from an employer for travelling in the performance of the duties of an office or employment is not taxable. However, the Act also provides that an allowance for the use of a motor vehicle may be deemed not to be a reasonable allowance. This is the case where the measurement of the use of the vehicle is not based solely on the number of kilometres for which the vehicle is used for employment purposes.
An allowance for the use of a motor vehicle which is composed of a daily rate and a cents per kilometre rate is not considered reasonable because it is not based solely on the number of kilometres driven. Accordingly, the total combined allowance would be taxable. However, employees who meet certain requirements may be entitled to deduct reasonable motor vehicle expenses incurred in the performance of their employment duties. An employee should refer to the 2000 Employment Expense guide for details of the expenses that may be claimed, and the conditions that must be met. This guide is available at all our tax services offices, or on our website at:
www ccra-adrc.gc.ca.
You may wish to note that a Notice to Employers was recently issued which modified the position previously stated in the Employer's Guide for Taxable Benefits to bring the reporting procedures in line with the legislation outlined above. A copy of this notice is enclosed for your reference.
I trust this information is of assistance in responding to your constituents.
Yours sincerely,
Martin Cauchon
Attachment
Notice to Employers
Employers' Guides
Employers' Guide - Taxable Benefits
Automobile allowances
Combination of flat-rate and reasonable per-kilometre allowances
This is to advise you of a change to the procedure for calculating the taxable benefit that is a combination of flat-rate and reasonable per-kilometre allowances.
Previous procedure
Previously, if the allowance you paid your employee was a combination of flat-rate and reasonable per-kilometre allowances, only the flat-rate portion was taxable. The reasonable per-kilometre portion was excluded from income.
Amended procedure
Starting January 1, 2001, if the allowance you pay your employee is a combination of flat-rate and reasonable per-kilometre allowances that cover the same use for the vehicle, the total combined allowance is taxable. The combined allowance has to be included in the employee's income for payroll deductions purposes.
Payroll deductions
Add the amount of the.combined taxable allowance to the employee's salary to determine the total amount subject to payroll deductions of tax, Employment Insurance premiurns, and Canada Pension Plan contributions per pay period.
Employees' allowable expenses
The employee has to include the combined allowance in his or her income and can claim allowable expenses. Chapter l of the employers' guide called Taxable Benefits will be revised accordingly.
Employers' guide - Payroll Deductions (Basic Information)
Workers' compensation awards
Top-up amount
There have been changes in how to treat top-up amounts paid while an employee is waiting for a workers' compensation award and top-up amounts funded by sick leave credits.
A top-up amount is an amount you pay your employee, in addition to the amount of a workers' compensation award the employee is paid by a workers' compensation board.
Exclude a top-up amount (even if it is paid as sick leave) from insurable earnings if you pay it after the claim is accepted by the workers' compensation board. However, the top-up amount is subject to CPP contributions and income tax, and you have to report it on a T4 slip at year end.
An amount you pay in addition to an advance or a loan is not a top-up amount if you pay it while waiting for a decision on a workers' compensation board claim. This amount is considered employment income, and you have to withhold CPP contributions, EI premiums, and income tax.
For withholding purposes, these changes will take effect on January 1, 2001.
Chapter 5 of the employers' guide called Payroll Deductions (Basic information) will be revised accordingly.