In a July 31, 2018 Tax Court of Canada case (Positano vs. H.M.Q., 2016-3612(IT)I), CRA had included vehicle allowances of $9,100 per year in the taxpayer’s income. In order to be non-taxable, the allowance must be reasonable (Subparagraph 6(1)(b)(vii.1)), which specifically requires it be based solely on kilometres driven (Subparagraph 6(1)(b)(x)). The allowance was paid for snow runs undertaken in the winter months to ensure client commitments for timely snow removal were met. They were based on the estimated number of trips required, the distance of each trip, and divided equally between the taxpayer and his brother, both shareholders of the business.

non-taxable allowances cannot be based on estimated business kilometre

Taxpayer loses
No records were maintained to support the number of snow runs or of which brother drove each snow run. The allowances were, therefore, based on estimated distance, not actual distance travelled. That is, although the distance for the snow run (always the same route) was known, neither the exact number of snow runs nor which individual drove each one was known. They were, therefore, not reasonable and fully taxable as employment income.

this option to simplify administration

Editors’ Comment
In Guide T4130, Employer’s Guide to Taxable Benefits and Allowances, CRA indicates that an employer could pay accountable allowances for vehicle expenses, provided that these are advances towards an established per-kilometre rate, and that both the rate and the allowance are reasonable.

Actual kilometres must still be tracked, and reported, by December 31 each year (or on cessation of employment prior to that date) and an adjustment paid for the difference between the advances and the actual per kilometre rate. Actual payments to clear any shortfall or excess must be made.

Applying this to the above case, the taxpayers could have maintained records of the number of trips made by each individual, applied a reasonable per kilometre rate, and repaid any excess, or paid out any shortfall, annually, while still paying the same regular allowances.