Earlier this month, Canadian taxpayers were peeved to learn that Members of
Parliament and public servants recently awarded themselves a 10% increase to
their travel reimbursement, which now stands above the private-sector norm at
50.6 cents per kilometre.
More importantly, it's above the maximum per-kilometre limit as prescribed in
the Income Tax Act Regulations.
If you use your car for work, perhaps to visit customers or clients, your
employer may provide you with a reasonable per-kilometre reimbursement for your
business kilometres driven during the course of your job. As long as this
allowance is reasonable, it does not have to be included in your income and thus
is tax-free.
Each December, the Department of Finance sets a specific rate limit for the
year, which governs how much an employer can reimburse its employees per
kilometre and still get a full tax deduction.
For example, last December, the government announced that for 2005, the limit
was 45 cents per kilometre for the first 5,000 kilometres driven, and 39 cents
for each additional kilometre. For the Yukon Territory, Northwest Territories
and Nunavut, the tax-exempt allowance was set slightly higher: 49 cents for the
first 5,000 kilometres driven, and 43 cents for each additional kilometre.
According to the finance department, "The allowance amounts reflect the key
cost components of owning and operating an automobile, such as depreciation,
financing, insurance, maintenance and fuel costs."
In the face of rising fuel costs, the government sought to increase its own
employees' reimbursement rate, notwithstanding the fact that it has not yet made
any moves to increase the amount that private-sector employers may deduct, and
thus reimburse their employees. The obvious difference is that the government
need not concern itself with limits on tax deductibility, since such limits
apply only to taxable entities.
That being said, in a press conference last Thursday, Ralph Goodale, the
Finance Minister, stated that he asked his department officials to "take into
account the exceptional circumstances of this year" and to "set the [new] amount
[for per-kilometre reimbursement] as rapidly as they can."
This is not the first time we've seen marked differences between public and
private sector tax rules. Take, for example, a tax case heard this past summer
involving train conductor William MacKenzie, an employee of Canadian National
Railway, who in 2003 was the conductor of a train on the route between Winnipeg
and Sioux Lookout, Ont., which caused him to be away from home for 116 days that
year.
While travelling, he was required to pay for his own meals. Under the Tax
Act, transportation-sector employees can deduct reasonable costs incurred for
meal expenses while travelling, provided they are not reimbursed by their
employers.
Under the CRA's long-standing administrative policy, employees may use either
the "detailed method" or the "simplified method" to make their claim. The
detailed method requires the taxpayer to maintain records and keep receipts for
each meal eaten. If these records are kept, then the employee can take a
deduction, subject to the normal 50% limitation, on food and beverage expenses,
based on the amounts paid.
Transport employees who find tracking expenses and keeping receipts a burden
may base their claim simply upon the number of meals that they ate during the
year while travelling, multiplied by an assumed cost of $15 per meal to a
maximum of $45 per day (this is the simplified method). The same 50% limitation
also applies.
Mr. MacKenzie originally claimed $45 per day for the 116 travel days while he
was away from Winnipeg, but later increased his claim to $48 per day when he
learned CRA officials, when required to travel in the course of their
employment, were allowed to claim $69.75 per day in 2003.
The Tax Court judge dismissed Mr. MacKenzie's claim, relying on comments made
by another judge in a similar case earlier this year: "There is no rationale for
the contention that [an employee] should be allowed deductions for meals and
other expenses at the rates established as non-accountable allowances for public
servants travelling on business for the Government of Canada, other than that he
thought it to be fair."
The judge felt the standard $45 daily allowance was "reasonable" and that if
Mr. MacKenzie actually spent more than $45 per day for meals while travelling
for CNR, he should have kept receipts of the amounts that he actually spent.
Apparently what's good for the goose is not necessarily deemed to be good for
her goslings.
GRAPHIC:
Colour Photo: Allen Mcinnis, CanWest News Service; The private-sector norm for
travel reimbursement for employees is around 50 cents per kilometre.