Court sides with CRA on travel allowance case

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Should you’re required to make use of your individual automobile for work, maybe to go to shoppers or for different work causes, most employers will reimburse you based mostly on a per-kilometre foundation and, offered the reimbursement is cheap, it needn’t be included in your revenue for tax functions.

However a current case reveals what can occur when an employer supplies its workers with an allowance that’s not completely based mostly on the precise kilometres the worker has pushed.

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Earlier than delving into this newest employment expense case, let’s assessment the final guidelines for deducting vehicle bills. Should you’re an worker who wants to make use of your automotive for work, you should meet sure situations with the intention to deduct a few of your vehicle bills in your tax return.

CRA situations

First, you should usually be required to work away out of your employer’s workplace or in other places. Second, beneath your contract of employment, you should be required to pay your individual vehicle bills, and this should be licensed by your employer on a signed copy of CRA Form T2200, Declaration of Conditions of Employment.

Lastly, you should not be the recipient of a “non-taxable” allowance for motorcar bills. An allowance is taken into account to be non-taxable when it’s solely based mostly on a “affordable” per-kilometre charge. For 2023, the Canada Revenue Agency considers an affordable charge to be 68 cents per kilometre for the primary 5,000 kilometres pushed, and 62 cents/km after that. Within the territories, the speed is 4 cents/km increased.

In case your employer reimburses you, however you are feeling the quantity was not affordable to cowl the precise working prices of your automobile, you may deduct the employment portion of your automobile working bills offered you embody the employer automobile allowance you obtained in your revenue.

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Journey bills taxable?

This most up-to-date case concerned a Kelowna, B.C. taxpayer who has labored as a boilermaker for greater than 30 years. The phrases of his employment are ruled by a collective settlement between his union and the Boilermaker Contractors’ Affiliation of British Columbia, an umbrella affiliation of member corporations who collectively are the taxpayer’s “employer.”

The taxpayer stated his union corridor usually calls him at his house to let him know what and the place his subsequent job is, and most of his jobs require him to drive from Kelowna to different areas. Within the years beneath assessment, the taxpayer travelled to jobs in numerous elements of B.C., reminiscent of Port Alice, Fort Nelson, Path, Kamloops, Castlegar, Quesnel and Crofton, in addition to Edmonton, amongst different areas.

The problem within the case was whether or not the journey allowances obtained by the taxpayer of $4,006 in 2014 and $6,590 in 2015 had been taxable, and whether or not any quantity of his motorcar bills was deductible from his employment revenue in these years.

The problem arose as a result of in 2014 and 2015, the collective settlement modified the way in which journey allowances had been calculated and paid to workers. The method for reimbursing workers for journey was streamlined by eliminating the necessity for receipts and utilizing a single location as a standard start line for calculating the per-kilometre reimbursement for all work-related journeys. The adjustments additionally ended up affecting the staff’ tax therapy.

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Within the earlier collective settlement, the taxpayer’s employer paid him his hourly charge for journey time, plus full airfare and transportation prices to his lodge.  Underneath the brand new collective settlement, which ruled the tax years beneath assessment, the employer reimbursed the taxpayer to be used of his motorcar by paying a journey allowance calculated utilizing the CRA’s annual per-kilometre vehicle rate, measured utilizing Burnaby Metropolis Corridor as a standard beginning place for all employees, no matter whether or not an individual really set out from there (which the taxpayer usually didn’t). There was no further fee or reimbursement for journey time or bills incurred, topic to particular exceptions for bills reminiscent of ferries, tolls, taxis and airfare.

The taxpayer testified he didn’t need to submit receipts for journey beneath this regime, and would mechanically obtain the allowance if he was dispatched to an out-of-town worksite. He stated this new technique of calculating the allowance typically paid him lower than it really price him to journey, and typically it paid him extra, so it “doubtless averaged out” on the finish of the 12 months. He additionally recalled that beneath the earlier collective settlement, his journey reimbursements had been by no means topic to tax.

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In the course of the CRA audit, the taxpayer offered copies of kinds T2200 for 2014 and 2015, dutifully signed by one of many corporations he did a big quantity of labor for in these years. On the shape, the employer confirmed the taxpayer was required to pay bills for which he didn’t obtain an allowance or reimbursement and confirmed it did pay the journey allowances beneath assessment by the CRA.

The decide reviewed the info and the laws. Put merely, the laws states that an allowance for motorcar bills should be “wholly affordable” with the intention to be excluded from employment revenue. Allowances which are unreasonable should be included in revenue of their entirety, because the taxpayer has no discretion to carve out an affordable portion from the remainder. Because of this, if a automotive allowance is taken into account unreasonable and should subsequently be included within the taxpayer’s revenue, the taxpayer can deduct their precise motorcar bills from their revenue.

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The decide dominated that since Burnaby Metropolis Corridor is “an arbitrary start line,” the allowance was not solely based mostly on the variety of kilometres pushed by the taxpayer, and was subsequently not affordable and wanted to be included in revenue.

As for the potential deduction of the taxpayer’s precise motorcar bills, this matter was left unclear. Because the collective settlement permits the taxpayer (and different boilermakers) to reside and base themselves in or outdoors B.C.’s Decrease Mainland, the decide queried whether or not journey from one’s house to the out-of-town areas is private versus work-related.

However, with out the taxpayer offering his precise bills, the decide was not keen to permit the taxpayer to easily deduct bills equal to the quantity of the taxable allowances.

A most unlucky consequence for the taxpayer.

Jamie Golombek, CPA, CA, CFP, CLU, TEP, is the managing director, Tax & Property Planning with CIBC Personal Wealth in Toronto. Jamie.Golombek@cibc.com.

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