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:

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

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.

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:

“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