Question

Subject: Automobile Allowances

During the current year, Jacob Lorenz leases an automobile for $450 per month, a total for the year of $5,400. He drives a total of 60,000 kilometres, of which 35,000 are employment-related. His total operating costs for the year are $15,000. His employer pays him $0.10 for each employment-related kilometre driven, a total of $3,500. What amounts should Mr. Lorenz include and deduct in determining net employment income for the current year?

Answer 1

As the milage allowance paid by the employer was based on the number of employment related kilometers driven, the $3,500 [(35,000 Km.)($0.10)] will not be included on his T4 Information Return and, as a consequence, it does not have to be included in his employment income. However, he will not be able to deduct his actual costs of owning and operating the automobile.

Mr. Lorenz's actual deductible costs total $11,900 [($5,400 + $15,000)(35,000 ÷ 60,000)], well in excess of the allowance of $3,500. While Mr. Lorenz could attempt to include the allowance in income and deduct the actual costs, this approach could be disallowed by the CRA