Vol. 137, No. 17 — August 13, 2003

Registration
SOR/2003-266 24 July, 2003

INCOME TAX ACT

P.C. 2003-1110 24 July, 2003

Her 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) , hereby makes the annexed Regulations Amending the Income Tax Regulations (Motor Vehicle Expenses and Benefits).

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

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, 14 cents; and

(b) in any other case, 17 cents.

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

(a) the product of 36 cents multiplied by the number of those kilometres;

APPLICATION

3. Section 1 applies to taxation years that end after 2002.

4. Section 2 applies to kilometres driven after 2002.

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 for 2003. Proposed changes to these limits and rates are announced each year by news release. News Release 2002-109 issued by the Department of Finance on December 20, 2002 contained the announcement of the rates and limits for 2003.

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 2002, the prescribed rate for employees other than automobile sales and leasing employees is changed from 16 to 17 cents per kilometre. For taxpayers employed principally in selling or leasing automobiles, the prescribed rate is changed from 13 to 14 cents per kilometre, for taxation years ending after 2002.

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 2002 by one cent.

Alternatives

These Regulations are necessary for the administration of the statutory requirements of the income tax system. There is, therefore, no alternative to amending these Regulations 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 7305.1 of the regulations. The net impact of all the changes is expected to reduce revenues to the government by approximately $5 million annually.

Consultation

The amendments related to automobile expenses were announced in Department of Finance news release 2002-109 issued on December 20, 2002. This news release can be found at the following web address: http://www.fin.gc.ca/news02/02-109e.html.

The amendments were pre-published in of the Canada Gazette, Part I, on May 3, 2003. It was later noticed that words were missing from the English version of paragraph 7305.1(a) of the regulations in that pre-publication. That version of the paragraph was corrected by re-inserting in it, after the words "to the taxpayer", the words "or a person related to the taxpayer".

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

Christiane Maurice
Tax Policy Officer
Tax Legislation Division
Department of Finance
L'Esplanade Laurier Building
140 O'Connor Street
Ottawa, Ontario
K1A 0G5
Telephone: (613) 996-9593

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

NOTICE:
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