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S.Short (613) 957-2134
MAR 30 1989
Dear Sirs:
Re: Subparagraphs 6(1)(b)(x) and 6(1)(b)(xi) of the Income Tax Act (the "Act")
This is in response to your correspondence dated February 27, 1989 wherein you have requested an interpretation of the above noted provisions of the Act as they relate to the situation set out below.
An employee receives a fixed monthly allowance ($200 per month) for city driving and an allowance ($.21 per kilometre) based solely on the number of business kilometres driven for out of town driving. You have queried whether the fixed dollar allowance must be included in income, whether the "out of town" allowance is to be excluded from income and, if only the "city" allowance is taxable, whether the employee will be allowed to claim expenses regarding the city driving pursuant to paragraph 8(1)(h) of the Act.
For the purposes of analyzing the above scenario, we have assumed that the employee is not reimbursed for any expenses in respect of the same use of the automobile.
Subparagraph 6(1)(b)(x) of the Act, with its preamble, provides that an allowance received in the year by an individual for the employment use of a motor vehicle will be deemed to be "in excess of a reasonable amount" and, therefore, included in income where the allowance is not determined solely on the basis of the distance travelled by that vehicle for business purposes. For this reason, the fixed monthly allowance is required to be included in the employee's income.
Under the new legislation, an automobile allowance must be paid on the basis of distance travelled, the employee must not receive both an allowance for the use of the motor vehicle and reimbursement of expenses for the same use, and the conditions set out in subparagraphs 6(1)(b)(v), (vi), or (vii.l) of the Act must be met in order for it to be exempt from income. The payment of the allowance described for out of town travel could meet the above conditions even though the employee is also receiving a flat rate allowance. We are of the opinion that the phrase "reimbursed in whole or in part" found in subparagraph 6(1)(b)(xi) of the Act would not be interpreted to include flat rate allowances. However, whether or not a distance-based allowance is reasonable would also involve a finding of fact based on all the circumstances of a particular case including the fact that more than one allowance is being paid to the employee in respect of the use of the same automobile.
If only the "city" allowance is included on the employee's T4, the employee would be unable to claim expenses pursuant to paragraph 8(1)(h) of the Act because the requirement of subparagraph 8(1)(h)(iii) would not be met.
We trust the above comments will be of assistance to you.
Yours truly,
for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch