An employer has a policy of paying an employee an allowance for the use of a motor vehicle of a fixed amount per kilometre driven for the use of the employee's vehicle in the course of the employee’s duties, up to a maximum number of kilometres driven during a particular period, with no allowance being paid for any excess kilometerage. Is such allowance deemed not to be reasonable by virtue of s. 6(1)(b)(x)? CRA responded:
In general … the mere presence of a capping policy such as the one at issue here is not sufficient to conclude that an allowance paid to an employee is deemed not to be reasonable by virtue of paragraph 6(1)(b)(x). …
The situation described in your request is unique in that it presents the possibility that an employee may, for a portion of the total distance travelled in the performance of employment duties, receive no allowance. In such a case, the allowance may not be high enough in relation to the expenses that the employee is expected to incur in a specific situation and thus may not be reasonable for the purposes of subparagraph 6(1)(b)(vii.1). If so, the allowance would be a taxable benefit that the employee would have to include in employment income under paragraph 6(1)(b).