Principal Issues: [TaxInterpretations translation] Does the position in Interpretation 2010-0387391E5 regarding the number of trips in the particular situation still represent our position?
Position: The opinion stated in the question submitted to us has not been valid since July 15, 2011. An allowance based on a rate of $0.44 per kilometer received by the employee should be included in the computation of the employee’s income by virtue of paragraph 6(1)(b).
Reasons: The Act.
FEDERAL TAX ROUNDTABLE 5 OCTOBER 2012
2012 APFF CONFERENCE
Question 20
Deductibility of costs related to a motor vehicle in the construction industry
On June 22, 2011, the CRA issued Interpretation 2010-0387391E5 which dealt, among other things, with the deductibility of motor vehicle expenses for construction employees who travelled to different work sites to which they were assigned in the course of their work. It was stated in the interpretation that "where an allowance is paid only for part of the employee's travel, the CRA is generally of the view that there are two trips, one covered by the allowance, the other which is not.”
Applying that CRA position, an employee traveling 30 kilometers separating the employee’s residence from a work site, and not receiving an allowance, would make a single trip not covered by an allowance. Assuming it is a trip to a work site that is not a "place of business" of the employee’s employer, the employee could then deduct all expenses related to the use of the employee’s vehicle for that trip in computing the employee’s employment income. On the other hand, an employee who travels 60 kilometers and receives an allowance for the excess over the first 40 kilometers would, according to the CRA, make two trips: one of 40 kilometers not covered by the allowance; and one of 20 kilometers covered by the allowance.
In light of the CRA's position in the above Interpretation, the employee would not be able to deduct the expenses of the employee’s motor vehicle for the travel covered by the allowance, namely the last 20 kilometers of the travel since the employee may not deduct expenses in the use of the employee’s motor vehicle if the employee receives a non-taxable allowance under paragraph 6(1)(b). The employee could therefore deduct only the expenses for the 40-kilometer trip, whereas the employee actually traveled a total of 60 kilometers in the course of the employment, and the employee could not then include in the employee’s income the allowance for the last 20 kilometers and claim all of the employee’s actual expenses for the 60 kilometers traveled.
The term "travel" is not defined in the Income Tax Act. According to the Larousse Dictionary, "travel" means the action of moving, of going from one place to another (our emphasis).
Assuming that it is not personal travel, but a single business trip, the employee would be able to deduct the full cost of using the employee’s motor vehicle for that purpose if certain conditions are satisfied, specifically, not receiving a non-taxable allowance under paragraph 6(1)(b). Assuming that an employee receives $0.44 per kilometer for travel, but only for the excess of kilometers traveled beyond 40 kilometers, we are of the view that the allowance received by that employee is unreasonably low, since it does not cover the entire distance traveled. Indeed, if the distance traveled is 60 kilometers, two-thirds of the journey traveled, or 40 kilometers, is not covered by the allowance. We are of the view that the employee can readily demonstrate, in such a case, that the reasonable travel expenses far exceed the allowance received. The employee could therefore, as stated in Interpretation 2006-0185451E5, voluntarily include the amount of the allowance in the employee’s income and deduct the expenses related to the use of the employee’s motor vehicle in computing the employee’s income.
Questions to the CRA
Can the CRA indicate whether it agrees with the position set out above or whether it is maintaining its position in Interpretation 2010-0387391E5?
If the CRA maintains its position in Interpretation 2010-0387391E5, can the CRA further explain why it assumes there are two trips for the purposes of the Act where the allowance partially covers the distance traveled by the employee for travel to a construction site, contrary to the general meaning accorded to the word "travel" in the Larousse Dictionary?
CRA Response
A taxpayer or the taxpayer’s representative must be very cautious when referring to a technical interpretation letter as it has its own limitations. There is no mechanism to update or revoke the opinions stated therein.
The opinion described in your question has not been valid since July 15, 2011.
In the situation you described, the CRA is of the view that the allowance based on a rate of $0.44 per kilometer received by the employee should be included in computing the employee’s income by virtue of paragraph 6(1)(b). Similarly, the employee may claim a deduction in computing the employee’s income for the employee’s motor vehicle expenses under paragraph 8(1)(h.1) in respect of the 60 kilometers that the employee traveled in the performance of the duties of the employee’s employment.
Isabelle Landry
(450) 623-0193
October 5, 2012
2012-045414