Vol. 150, No. 24 — November 30, 2016
Registration
SOR/2016-296 November 18, 2016
INCOME TAX ACT
Regulations Amending the Income Tax Regulations (Motor Vehicle Expenses and Benefits 2016)
P.C. 2016-984 November 18, 2016
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 2016).
Regulations Amending the Income Tax Regulations (Motor Vehicle Expenses and Benefits 2016)
Amendments
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 Paragraph 7306(a) of the Regulations is replaced by the following:
- (a) the product of 48 cents multiplied by the number of those kilometres;
Application
3 Sections 1 and 2 apply to kilometres driven after 2015.
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 expense benefit rates, income tax deduction limits and capital cost 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 for income tax purposes. These rules, described in detail below, use various rates and limits to reflect the costs of automobile usage for business purposes. These are assessed each year to determine if they need to be adjusted 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 allowed under the Act.
- — The capital cost ceiling restricts the cost of an automobile on which capital cost allowance may be claimed. It reflects the cost of acquiring an automobile that is generally acceptable for business purposes. 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 implement changes in the cost of acquiring, financing and operating automobiles for business purposes, as announced by the Minister of Finance in a news release entitled “Government Announces the 2016 Automobile Deduction Limits and Expense Benefit Rates for Business” issued by the Department of Finance on December 24, 2015.
Description
Although most of the limits and rates that applied in 2015 will continue to apply in 2016, there are two changes taking effect as of 2016, as announced in the news release.
Firstly, the limit on the deduction of tax-exempt allowances that are paid by employers to employees who use their personal vehicle for business purposes is reduced by 1 cent to 54 cents per kilometre for the first 5 000 kilometres driven, and to 48 cents per kilometre for each additional kilometre.
For the Northwest Territories, Nunavut and Yukon, the tax-exempt allowance is 4 cents higher, and is reduced by 1 cent to 58 cents per kilometre for the first 5 000 kilometres driven, and to 52 cents per kilometre for each additional kilometre.
These allowances are intended to reflect the main costs of owning and operating an automobile, such as depreciation, financing, insurance, maintenance and fuel.
The second change in 2016 is that the general prescribed rate that is used to determine the taxable benefit of employees relating to the personal portion of automobile operating expenses paid by their employers is reduced by 1 cent to 26 cents per kilometre.
For taxpayers who are employed principally in selling or leasing automobiles, the prescribed rate used to determine the employee’s taxable benefit is reduced by 1 cent to 23 cents per kilometre. The amount of this benefit is intended to reflect the costs of operating an automobile.
The additional benefit of having an employer-provided vehicle available for personal use (i.e. the automobile standby charge) is calculated separately based on capital costs and is also included in the employee’s income.
The following limits from 2015 remain in place for 2016:
- The ceiling on the capital cost of passenger vehicles for capital cost allowance (CCA) purposes remains at $30,000 (plus applicable federal and provincial sales taxes) for purchases after 2015. This ceiling restricts the cost of a vehicle on which CCA may be claimed for business purposes.
- The maximum allowable interest deduction for amounts borrowed to purchase an automobile remains at $300 per month for loans related to vehicles acquired after 2015.
- The limit on deductible leasing costs remains at $800 per month (plus applicable federal and provincial sales taxes) for leases entered into after 2015. This limit is one of two restrictions on the deduction of automobile lease payments. A separate restriction prorates deductible lease costs where the value of the vehicle exceeds the capital cost ceiling.
“One-for-One” Rule
The amendments to the ITR are not expected to impose new administrative costs on business. Therefore, the “One-for-One” Rule does not apply.
Small business lens
The amendments to the ITR are not expected to impose new compliance and administrative costs on small business. Therefore, the small business lens does not apply.
Consultation
Stakeholders were given an opportunity to comment on the recommended changes following the issuance of the news release on December 24, 2015, by the Department of Finance through its website. No comments have been received.
Rationale
The amendments to the ITR continue an annual process of ensuring that the expense benefit rates and income tax deduction limits remain appropriate and reflect changes in the costs associated with acquiring, financing and operating an automobile for business purposes.
Implementation, enforcement and service standards
The Act provides the necessary compliance mechanisms for enforcement of the ITR. These mechanisms allow the Minister of National Revenue to assess and reassess tax payable, conduct audits and seize relevant records and documents.
Contact
Daniella Marando
Tax Legislation Division
Department of Finance
James Michael Flaherty Building
90 Elgin Street
Ottawa, Ontario
K1A 0G5
Telephone: 613-369-9249
- Footnote a
S.C. 2007, c. 35, s. 62 - Footnote b
R.S., c. 1 (5th Supp.) - Footnote 1
C.R.C., c. 945