Motor Vehicle Allowances: Carpooling

Posted on June 17th, 2024 in Domestic Tax

Carpool Ride Sharing. African People Using Car Share

Reasonable motor vehicle allowances received by employees in the course of employment duties are non-taxable. An allowance is not reasonable (and therefore taxable) if any of the following are met:

  • the allowance is not based solely on the number of kilometres driven for employment purposes;
  • the employee is reimbursed in whole or part for expenses in respect of that use; or
  • the per-km amount is not reasonable.

A November 23, 2023, French Technical Interpretation considered the tax implications of an employer increasing the motor vehicle allowance paid to its employees by an additional per kilometre amount for each person accompanying the driver. CRA opined that the two parts of the allowance (base and additional amount per passenger) constituted a single allowance since both were intended for the same use of the vehicle. They then opined that as the allowance provided was not solely based on the number of kilometres travelled to perform the duties of employment, the entire allowance was taxable.

Ensure that allowances paid to employees meet the strict conditions for being tax-free to avoid a surprise tax bill for the recipient.

Article originally published in: Tax Tips & Traps 2024 Second Quarter – Issue 146.

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