Limited Distance Covered: TRAVEL ALLOWANCES

In a March 5, 2021 French Technical Interpretation, CRA
commented on whether a travel
allowance paid to employees on
a per kilometre basis, but only up
to a limited number of
kilometres, could be a non-taxable allowance.
For the allowance to be non-taxable, it must be a reasonable
allowance for the use of a motor vehicle when travelling in the performance of employment
duties. Further, measurement of the use of the vehicle must
be based solely on kilometres, or the allowance will be
deemed unreasonable and therefore taxable.
First, CRA opined that placing a cap on the number of
kilometres covered would not mean that the measurement
was not based solely on kilometres. As such, it would not
automatically be unreasonable.
However, the allowance could still be unreasonable since it
may not be high enough in relation to the total motor
vehicle expenses that the employee is expected to incur in
the performance of their employment duties. If considered
unreasonable, the allowance would be taxable.

Structure compensation for the
employment use of an employee’s vehicle carefully to
ensure that any allowance received will not be taxable to
the employee. A taxable assessment after the fact can create significant employee/employer issues.

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