Revenue Canada Taxation Head Office
J.D. Jones (613) 957-2104
MAY 25 1989
Dear Sirs:
Re: Car Allowances
This is in reply to your letter of April 10, 1989, wherein you requested our opinion on the tax treatment of an automobile allowance received by an individual in the following situation.
X corporation employs a number of resident Canadian individuals who are ordinarily required to carry on the duties of their employment away from X corporation's place of business or in different places. The employees do not qualify for deductions from income pursuant to paragraphs 8(1)(e), 8(1)(f) or 8(1)(g) of the Income Tax Act (the "Act") and under the contract of employment the employees are required to pay travelling expenses incurred in the performance of their employment. The employees receive an allowance of 21 cents for each kilometer driven in a motor vehicle while performing their employment obligations as required under the contract of employment. In addition, X corporation reimburses one gasoline bill of $10 on behalf of each employee. The gasoline bill relates to the same use of the motor vehicle for which the allowance of 21 cents per kilometer is received.
Based upon the above, we will respond to your comments in the order in which they were posed. We concur with your view that subparagraph 6(1)(b)(xi) of the Act deems the per kilometer allowance received by the employee to be in excess of a reasonable amount as the employee has also been reimbursed, in part, for the same use of a motor vehicle. As a result, the 21 cents per kilometer received as an allowance must be included in income pursuant to paragraph 6(1)(b) of the Act. We also concur with your view that in the above situation the employees have not received an allowance described in subparagraph 8(l)(h)(iii) of the Act which was not included in income and, as such, the employees would be permitted to deduct "travelling expenses" pursuant to paragraph 8(1)(h) of the Act.
X corporation may deduct both the allowances paid and the reimbursement of the gasoline bills in calculating its taxable income provided section 67 of the Act is not applicable. We also are in agreement with your view that section 245 of the Act is not applicable in the above situation.
The foregoing represents our considered opinion as to how the law applies generally, but this is not a ruling and is not binding upon the Department.
Yours truly,
for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch
c.c. Current Amendments and Regulations Division