Vol. 148, No. 12 — June 4, 2014

Registration

SOR/2014-118 May 16, 2014

INCOME TAX ACT

Regulations Amending the Income Tax Regulations (Motor Vehicle Expenses and Benefits 2014)

P.C. 2014-573 May 15, 2014

His Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to section 221 (see footnote a) of the Income Tax Act (see footnote b), makes the annexed Regulations Amending the Income Tax Regulations (Motor Vehicle Expenses and Benefits 2014).

REGULATIONS AMENDING THE INCOME TAX REGULATIONS (MOTOR VEHICLE EXPENSES AND BENEFITS 2014)

AMENDMENTS

1. (1) Paragraphs 7305.1(a) and (b) of the Income Tax Regulations (see footnote 1) are replaced by the following:

• (a) if a taxpayer is employed in a taxation year by a particular person principally in selling or leasing automobiles and an automobile is made available in the year to the taxpayer or a person related to the taxpayer by the particular person or a person related to the particular person, 23 cents; and
• (b) in any other case, 26 cents.

(2) Paragraphs 7305.1(a) and (b) of the Regulations, as enacted by subsection (1), are replaced by the following:

• (a) if a taxpayer is employed in a taxation year by a particular person principally in selling or leasing automobiles and an automobile is made available in the year to the taxpayer or a person related to the taxpayer by the particular person or a person related to the particular person, 24 cents; and
• (b) in any other case, 27 cents.

2. (1) Paragraph 7306(a) of the Regulations is replaced by the following:

• (a) the product of 47 cents multiplied by the number of those kilometres;

(2) Paragraph 7306(a) of the Regulations, as enacted by subsection (1), is replaced by the following:

• (a) the product of 48 cents multiplied by the number of those kilometres;

APPLICATION

3. (1) Subsection 1(1) applies to taxation years that end in 2012.

(2) Subsection 1(2) applies to taxation years that end after 2012.

4. (1) Subsection 2(1) applies to kilometres driven in 2012.

(2) Subsection 2(2) applies to kilometres driven after 2012.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Issues

As the costs of acquiring, financing and operating a motor vehicle change, the rates, limits and ceiling (described below) are adjusted through amendments to the Income Tax Regulations (ITR) to reflect changes in the underlying costs.

Background

The Income Tax Act (the Act) contains several rules related to the treatment of automobile expenses and benefits for businesses and employees. These rules, described in detail below, use various rates and limits to reflect the costs of automobile usage. The rates are determined for each taxation year to reflect changes in the costs of acquiring, financing and operating an automobile.

There are five prescribed limits and rates that help define the level of automobile expense deductions and taxable benefits under the Act.

• The capital cost ceiling restricts the cost of an automobile on which capital cost allowance may be claimed. The ceiling is set under subsection 7307(1) of the ITR.
• The interest expense limit restricts the deductibility of interest related to financing the purchase of an automobile that costs more than the capital cost ceiling. The limit is set under subsection 7307(2) of the ITR.
• The leasing limit restricts the deductibility of automobile leasing costs. The limit is set under subsection 7307(3) of the ITR.
• The tax-exempt per-kilometre allowance limit is a simplifying provision allowing employers to deduct, at a rate no higher than the prescribed limit, the cost of reimbursing employees who use their personal vehicle for business use. The limit is set under section 7306 of the ITR.
• The operating expense benefit rate determines the amount of an employee’s taxable benefit where an employer pays the operating costs of an automobile that the employee uses for personal purposes. The rate is set under section 7305.1 of the ITR.

Objectives

To reflect changes in the cost of acquiring, financing and operating automobiles for business purposes, as announced by the Department of Finance in news releases dated December 29, 2011, December 28, 2012, and December 30, 2013 (numbers 2011-146, 2012-178 and 2013-170).

Description

As announced in the news releases

• The operating expense benefit rates are increased by $0.02 per kilometre (km) for 2012 and by an additional $0.01 per km as of 2013, to $0.27 per km in 2013 for the general rate and to $0.24 per km for automobile salespersons.
• The current tax-exempt per-kilometre allowance limits have been increased by $0.01 per km for 2012 and by an additional $0.01 per km as of 2013, to generally $0.54 per km for the first 5 000 kilometres in 2013 and to $0.48 per km for subsequent kilometres.

No changes are needed to the capital cost ceiling, the interest expense limit and the leasing limit.

“One-for-One” Rule

These Regulations are not expected to impose new administrative costs on business. Therefore, the “One-for-One” Rule does not apply.

Small business lens

These Regulations are not expected to impose significant new compliance and administrative costs on small business. Therefore, the small business lens does not apply.

Consultation

Canadians in general were given opportunities to comment on the recommended changes following the December 29, 2011, December 28, 2012, and December 30, 2013, issuance of news releases 2011-146, 2012-178 and 2013-170 by the Department of Finance. The news releases are available through the Department’s Web site.

Rationale

These amendments continue an annual process, and are necessary to ensure the rates and limits remain appropriate and reflect changes in the costs associated with acquiring, financing and operating an automobile for business purposes for 2012, 2013 and 2014.

Implementation, enforcement and service standards

The Act provides the necessary compliance mechanisms. These mechanisms allow the Minister of National Revenue to assess and reassess tax payable, conduct audits and seize relevant records and documents.

Contact

Tobias Witteveen
Tax Legislation Division
Department of Finance
L’Esplanade Laurier
140 O’Connor Street
Ottawa, Ontario
K1A 0G5
Telephone: 613-992-4859

• Footnote a
  S.C. 2000, c. 12, s. 142 (Sch. 2, par. 1(z.34))
• Footnote b
  R.S., c. 1 (5th Supp.)
• Footnote 1
  C.R.C., c. 945