Besides the possibility of a tax-free allowance, another possibility exits to reimburse employees or shareholders for business use of personally owned or leased vehicles.

If the employer is flexible and it appears that the CRA prescribed automobile tax-free allowance rate is not adequate to cover actual operating costs incurred by the individual, taxpayers can argue that the business can reimburse actual operating costs which can be tax-free to the recipient and tax-deductible to the business.

As these issues are complex and taxpayers should consult with their tax accountant, preferably one that has a CPA (Chartered Professional Accountants) or CA (Chartered Accountants) designation. Our CPA – CA accounting firm based in Edmonton are highly experienced in income tax matters and would be pleased to assist in your personal or business tax matters.

Reimbursements can be argued to not be allowances and therefore are non-taxable receipts. At issue is how to measure the reimbursement and the reasonableness of the actual expenses incurred by the individual. This would require a very specific and detailed calculation and which must be supportable with receipts and a detailed mileage log kept by the individual. If you are claiming automobile expenses relating to the use of your vehicle at work, you must maintain a log book indicating the total kilometers you drove in the year and the kilometers you drove to earn employment income. The log book should also contain the date, destination, and the distance traveled for each trip. Make sure that you record the odometer reading of the vehicle at the beginning and end of each year.

For leased vehicles, this option allows the lease costs to be included in the calculation of operating costs to be reimbursed. However, for vehicles which are owned, depreciation on the cost of the vehicle may not qualify as an operating cost and may not therefore be a reimbursable cost. Failure to document properly the mileage and costs incurred may result in CRA disallowing some or all of the tax-free status and including the some or all of the amounts paid into the individual’s income. To the extent that the amounts are considered tax-free, the recipient receives the amount tax-free and the payor business may deduct the full amount paid.

As these issues are complex and taxpayers should consult with their tax accountant, preferably one that has a CPA (Chartered Professional Accountant) or CA (Chartered Accountant) designation. Our CPA – CA accounting firm based in Edmonton are highly experienced in income tax matters and would be pleased to assist in your personal or business tax matters.

ANDERSONBRONSCH TEAM
ROMANOVSKY & ASSOCIATES LLP
CHARTERED PROFESSIONAL ACCOUNTANTS


Keith M.J. Anderson* BCom, CPA, CA-IT, CITP

Chartered Professional Accountant and Chartered Accountant (Canada)
CA-Designated Information Technology Specialist (Canada)
Certified Information Technology Professional (US)
* Professional Corporation

Web: www.AlbertaCPA.com
Email: keith@albertacpa.com
Phone: 780 447 5830
Fax: 780 451 6291
Cell: 780 906 2223

Disclaimer:
This information is provided for general information purposes only. As legislation changes frequently, certain information may be out of date periodically. The complexity of the Law and the varied circumstances of each taxpayer dictates that the information provided may not be suitable in all circumstances. Readers must not rely on any information provided without first obtaining direct and competent professional advice. The information provided is not intended to replace or serve as substitute for any audit, advisory, tax or other professional advice, consultation or service. Therefore, the information is provided “as is” without warranties of any kind, express or implied, including accuracy, timeliness and completeness. In no event shall and associated parties to this information be liable for any direct, indirect, incidental, special, exemplary, punitive, consequential or other damages whatsoever.

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