In a March 28, 2013 Technical Interpretation, the Canada Revenue Agency (CRA) notes that:
- An allowance received for the use of a motor vehicle is deemed not to be reasonable (and therefore taxable to the employee) unless based solely on the number of kilometres travelled.
- In this case, the employee was provided $4.60 per trip of less than 10 kilometres. CRA concluded that this payment would be taxable to the employee, however, certain expenses may be deductible by the employee.
Because it is a taxable allowance, the employer will not be entitled to the GST/HST Input Tax Credit. However, the employee, in addition to deducting employment expenses, may be entitled to a GST/HST rebate.
Action Item: Motor vehicle allowances are a common target of CRA review because many detailed rules apply. Give us a call if you want to review the tax implications of your motor vehicle allowances.