Vol. 140, No. 28 — July 15, 2006

Regulations Amending the Income Tax Regulations (Motor Vehicle Expenses and Benefits 2006)

Statutory authority

Income Tax Act

Sponsoring department

Department of Finance

REGULATORY IMPACT
ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Description

These amendments to the Income Tax Regulations (the Regulations) prescribe the automobile deduction limits and benefit rates applicable as of 2006. Proposed changes to these limits and rates are announced each year by news release.

Section 7305.1 of the Regulations applies for the purpose of subparagraph (v) in the description of A in paragraph 6(1)(k) of the Income Tax Act (the Act). These provisions determine the per-kilometre value of the personal benefit that an employee must recognize in computing income if the employee's automobile operating expenses are paid for by the employer. For taxation years ending after 2005, the prescribed rate for employees other than automobile sales and leasing employees is changed from 20 to 22 cents per kilometre. For taxpayers employed principally in selling or leasing automobiles, the prescribed rate is changed from 17 to 19 cents per kilometre, for taxation years ending after 2005.

Section 7306 of the Regulations applies for the purpose of paragraph 18(1)(r) of the Act to determine the maximum amount deductible by an employer in respect of non-taxable automobile allowances paid by the employer to an employee. The maximum amount is determined by reference to the number of kilometres driven in the year for the purpose of earning income. The amendment to that section increases the per-kilometre limits for kilometres driven after 2005 by 5 cents.

Alternatives

These sections are necessary for the administration of the statutory requirements of the income tax system. There is, therefore, no alternative to amending them when these rates are changed.

Benefits and costs

The amendment to section 7305.1 of the Regulations increases the per-kilometre rate for determining the personal benefit component for an employee whose automobile operating expenses are paid for by the employer. The amendment to section 7306 of the Regulations increases the amount that may be deducted by an employer in respect of a non-taxable automobile allowance.

The amendment to section 7306 of the Regulations is expected to cause a decrease in federal tax revenues, which is expected to be partially offset by a small increase in federal tax revenues caused by the amendment to section 7305.1 of the Regulations. The net impact of all the changes is expected to reduce the Government of Canada's revenues by approximately $45 million annually.

Consultation

These amendments related to automobile expenses were announced in Department of Finance News Release 2005-086 issued on December 6, 2005.

Strategic environmental assessment

These amendments are not intended to have any significant environmental impact. In particular, they reflect actual increases in vehicle operating costs, including insurance and gasoline, as measured by Consumer Price Index subindices. It is not anticipated that these changes will have any impact on motor vehicle utilization levels, and subsequently on the environment, relative to impacts encompassed in the original policy, which remains to fairly compensate drivers who use their own vehicles for business purposes and to assess a reasonable taxable benefit to those who use an employer-provided automobile for personal use.

Compliance and enforcement

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

Contact

Gurinder Grewal, Tax Policy Officer, Tax Legislation Division, Department of Finance, L'Esplanade Laurier Building, 140 O'Connor Street, Ottawa, Canada K1A 0G5, 613-992-1862.

PROPOSED REGULATORY TEXT

Notice is hereby given that the Governor in Council, pursuant to section 221 (see footnote a) of the Income Tax Act, proposes to make the annexed Regulations amending the Income Tax Regulations (Motor Vehicle Expenses and Benefits 2006).

Any interested person may make representations concerning the proposed amendments within 30 days after the date of publication of this notice. All such representations must be addressed to Gurinder Grewal, Tax Legislation Division, Department of Finance, L'Esplanade Laurier, 17th floor, East Tower, 140 O'Connor Street, Ottawa, Canada, K1A 0G5, and cite the Canada Gazette, Part I, and the date of this notice.

Ottawa, June 30, 2006

DIANE LABELLE
Acting Assistant Clerk of the Privy Council

REGULATIONS AMENDING THE INCOME TAX REGULATIONS (MOTOR VEHICLE EXPENSES AND BENEFITS 2006)

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, 19 cents; and

(b) in any other case, 22 cents.

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

(a) the product of 44 cents multiplied by the number of those kilometres;

APPLICATION

3. Section 1 applies to taxation years that end after 2005.

4. Section 2 applies to kilometres driven after 2005.

[28-1-o]

Footnote a

S.C. 2000, c. 12, s. 142 (Sch. 2, par. 1(z.34))

Footnote 1

C.R.C., c. 945

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