Regulations Amending the Income Tax Regulations (Motor Vehicle Expenses and Benefits 2018–2023): SOR/2023-246
Canada Gazette, Part II, Volume 157, Number 25
Registration
SOR/2023-246 November 24, 2023
INCOME TAX ACT
P.C. 2023-1161 November 24, 2023
Her Excellency the Governor General in Council, on the recommendation of the Minister of Finance, makes the annexed Regulations Amending the Income Tax Regulations (Motor Vehicle Expenses and Benefits 2018–2023) under section 221footnote a of the Income Tax Act footnote b.
Regulations Amending the Income Tax Regulations (Motor Vehicle Expenses and Benefits 2018–2023)
Amendments
1 (1) Paragraphs 7305.1(a) and (b) of the Income Tax Regulations 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) Paragraphs 7305.1(a) and (b) of the Regulations 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, 25 cents; and
- (b) in any other case, 28 cents.
(3) Paragraphs 7305.1(a) and (b) of the Regulations 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, 24 cents; and
- (b) in any other case, 27 cents.
(4) Paragraphs 7305.1(a) and (b) of the Regulations 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, 26 cents; and
- (b) in any other case, 29 cents.
(5) Paragraphs 7305.1(a) and (b) of the Regulations 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, 30 cents; and
- (b) in any other case, 33 cents.
2 (1) Paragraph 7306(a) of the Regulations is replaced by the following:
- (a) the product of 49 cents multiplied by the number of those kilometres;
(2) Paragraph 7306(a) of the Regulations is replaced by the following:
- (a) the product of 52 cents multiplied by the number of those kilometres;
(3) Paragraph 7306(a) of the Regulations is replaced by the following:
- (a) the product of 53 cents multiplied by the number of those kilometres;
(4) Paragraph 7306(a) of the Regulations is replaced by the following:
- (a) the product of 55 cents multiplied by the number of those kilometres;
(5) Paragraph 7306(a) of the Regulations is replaced by the following:
- (a) the product of 62 cents multiplied by the number of those kilometres;
3 (1) The description of A in paragraph 7307(1)(b) of the Regulations is amended by striking out “or” at the end of subparagraph (iv) and by replacing subparagraph (v) with the following:
- (v) after 2000 and before 2022, $30,000, and
- (vi) after 2021, $34,000, and
(2) The description of A in paragraph 7307(1)(b) of the Regulations is amended by striking out “and” at the end of subparagraph (v) and by replacing subparagraph (vi) with the following:
- (vi) after 2021 and before 2023, $34,000, and
- (vii) after 2022, $36,000, and
(3) The description of A in subsection 7307(1.1) of the Regulations is replaced by the following:
- A is, with respect to a vehicle acquired,
- (a) after March 18, 2019 and before 2022, $55,000, and
- (b) after 2021, $59,000; and
(4) The description of A in subsection 7307(1.1) of the Regulations is amended by striking out “and” at the end of paragraph (a) and by replacing paragraph (b) with by the following:
- (b) after 2021 and before 2023, $59,000, and
- (c) after 2022, $61,000; and
(5) The description of A in paragraph 7307(3)(b) of the Regulations is amended by striking out “and” at the end of subparagraph (iv) and by replacing subparagraph (v) with the following:
- (v) for leases entered into after 2000 but before 2022, $800, and
- (vi) for leases entered into after 2021, $900, and
(6) The description of A in paragraph 7307(3)(b) of the Regulations is amended by striking out “and” at the end of subparagraph (v) and by replacing subparagraph (vi) with the following:
- (vi) for leases entered into after 2021 but before 2023, $900, and
- (vii) for leases entered into after 2022, $950, and
Application
4 (1) Subsections 1(1) and 2(1) apply to kilometres driven after 2017 but before 2019.
(2) Subsection 1(2) applies to kilometres driven after 2018 but before 2021.
(3) Subsection 1(3) applies to kilometres driven after 2020 but before 2022.
(4) Subsections 1(4) and 2(4) apply to kilometres driven after 2021 but before 2023.
(5) Subsections 1(5) and 2(5) apply to kilometres driven after 2022.
(6) Subsection 2(2) applies to kilometres driven after 2018 but before 2020.
(7) Subsection 2(3) applies to kilometres driven after 2019 but before 2022.
(8) Subsections 3(1), (3) and (5) apply after 2021 but before 2023.
(9) Subsections 3(2), (4) and (6) apply after 2022.
REGULATORY IMPACT ANALYSIS STATEMENT
(This statement is not part of the Regulations.)
Issues
The annual cost of acquiring, financing, and operating an automobile is influenced by market conditions and inflationary pressures. Amendments to the Income Tax Regulations (ITR) are commonly required to ensure that the recognition of changes in these underlying costs are reflected in the tax treatment of motor vehicles.
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:
- Capital cost ceilings restrict the cost of an automobile on which capital cost allowance may be claimed. The ceilings reflect the cost of acquiring an automobile that is generally acceptable for business purposes in respect of passenger vehicles and zero-emission passenger vehicles. The ceilings are set under subsections 7307(1) and (1.1) 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.
Objective
To implement the automobile deduction limits and expense benefit rates in respect of taxation years 2018, 2019, 2020, 2021, 2022, and 2023.
Description
The amendments ensure that the capital cost ceilings, interest expense limit, leasing limit, tax-exemption per-kilometre allowance limit reflect the underlying costs related to financing, acquiring or operating an automobile.
Capital cost ceilings
For purchases in respect of vehicles acquired before 2022, the ceilings will remain unchanged for passenger vehicles costing $30,000 (plus applicable federal and provincial sales taxes), and for zero-emission vehicles costing $55,000 (plus applicable federal and provincial sales taxes).
In respect of vehicles acquired on or after January 1, 2022, the ceiling on passenger vehicles will be increased from $30,000 to $34,000 (plus applicable federal and provincial sales taxes), and the ceiling on zero-emission passenger vehicles will be increased from $55,000 to $59,000 (plus applicable federal and provincial sales taxes).
In respect of vehicles acquired on or after January 1, 2023, the ceiling on passenger vehicles will be increased from $34,000 to $36,000 (plus applicable federal and provincial sales taxes) and for zero-emission passenger vehicles, the ceiling will be increased from $59,000 to $61,000 (plus applicable federal and provincial sales taxes).
Interest expense limit
The maximum allowable interest deduction for new automobile loans will remain at $300 per month in taxation years 2018, 2019, 2020, 2021, 2022, and 2023.
Leasing limit
The limit on deductible leasing costs will remain at $800 per month (plus applicable federal and provincial sales taxes) for leases entered into before 2022. Deductible leasing costs will be increased from $800 to $900 per month, before taxes, for new leases entered into after January 1, 2022. Deductible leasing costs will be increased from $900 to $950 per month, before taxes, for new leases entered into on or after January 1, 2023.
Tax-exempt per-kilometre allowance limit
The per-kilometre limit on the deduction of tax-exempt allowances that are paid by employers to employees who use their personal vehicle for business purposes will be increased by one cent in 2018, three cents in 2019, one cent in 2020, two cents in 2022, and seven cents in 2023.
- The per-kilometre limit on the deduction of tax-exempt allowances that are paid by employers to employees who use their personal vehicle for business purposes for the first 5 000 km driven will be 55 cents in 2018, 58 cents in 2019, 59 cents in 2020 and 2021, 61 cents in 2022, and 68 cents in 2023. The tax-exempt allowance for each additional kilometre will be 49 cents in 2018, 52 cents in 2019, 53 cents in 2020 and 2021, 55 cents in 2022, and 62 cents in 2023.
For the Yukon, Northwest Territories and Nunavut, the tax-exempt allowances are four cents higher than the rate allowed in other provinces, reflecting the additional cost of operating a motor vehicle in northern regions.
| All provinces | Yukon/Northwest Territories/Nunavut | |||
|---|---|---|---|---|
| First 5 000 km | Over 5 000 km | First 5 000 km | Over 5 000 km | |
| 2017 | 54¢ | 48¢ | 58¢ | 52¢ |
| 2018 | 55¢ | 49¢ | 59¢ | 53¢ |
| 2019 | 58¢ | 52¢ | 62¢ | 56¢ |
| 2020 | 59¢ | 53¢ | 63¢ | 57¢ |
| 2021 | 59¢ | 53¢ | 63¢ | 57¢ |
| 2022 | 61¢ | 55¢ | 65¢ | 59¢ |
| 2023 | 68¢ | 62¢ | 72¢ | 66¢ |
Operating expense benefit
The per-kilometre prescribed rate is used to determine the taxable benefit of employees relating to the personal portion of automobile operating expenses paid by their employers. It will be increased by one cent in 2018 and two cents in 2019. The 2020 rate will be unchanged from the 2019 rate. The rate will decrease by one cent in 2021 reflecting the decrease in the price of gasoline over the 2021 reference period, increase by one cent in 2022, and increase by four cents in 2023.
The per-kilometre general prescribed rate will be 26 cents in 2018, 28 cents in 2019 and 2020, 27 cents in 2021 and 29 cents in 2022. For taxpayers who are employed principally in selling or leasing automobiles, the per-kilometre prescribed rate used to determine the employee’s taxable benefit will be 23 cents in 2018, 25 cents in 2019 and 2020, 24 cents in 2021, 26 cents in 2022, and 30 cents in 2023.
| General rate | Employed principally in selling or leasing automobiles | |
|---|---|---|
| 2017 | 25¢ | 22¢ |
| 2018 | 26¢ | 23¢ |
| 2019 | 28¢ | 25¢ |
| 2020 | 28¢ | 25¢ |
| 2021 | 27¢ | 24¢ |
| 2022 | 29¢ | 26¢ |
| 2023 | 33¢ | 30¢ |
Regulatory development
Consultation
| News releases | Date |
|---|---|
| Government Announces the 2018 Automobile Deduction Limits and Expense Benefit Rates for Business | December 22, 2017 |
| Government Announces the 2019 Automobile Deduction Limits and Expense Benefit Rates for Business | December 27, 2018 |
| Government Announces the 2020 Automobile Deduction Limits and Expense Benefit Rates for Business | December 19, 2019 |
| Government Announces the 2021 Automobile Deduction Limits and Expense Benefit Rates for Business and Temporary Adjustments to the Automobile Standby Charge due to COVID-19 | December 21, 2020 |
| Government Announces the 2022 Automobile Deduction Limits and Expense Benefit Rates for Businesses | December 23, 2021 |
| Government Announces the 2023 Automobile Deduction Limits and Expense Benefit Rates for Businesses | December 16, 2022 |
The public, including businesses and employees who would be impacted by these changes, along with their tax advisors, were given an opportunity to comment on the recommended changes following the issuance of the news releases for each respective year (as described above) by the Department of Finance through its website.
No comments were received in response to the news releases specifically; however, interested stakeholder associations are provided with the opportunity to supply comments to the Department of Finance on the automobile deduction and taxable benefit provisions under the Act on an ongoing basis.
The Regulations were exempt from prepublication in the Canada Gazette, Part I, based on the broad circulation through the above-noted consultation process.
Modern treaty obligations and Indigenous engagement and consultation
No impacts have been identified in respect of the Government’s obligations in relation to Indigenous rights protected by section 35 of the Constitution Act, 1982, modern treaties and international human rights obligations.
Instrument choice
Regulatory amendments are required to 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. No other type of instrument is available under the Act to achieve this objective.
Regulatory analysis
Benefits and costs
These amendments codify previously announced changes in the automobile expense deduction limits and prescribed rates related to deductions for the business use of vehicles and the taxable benefit for personal driving of employer-provided vehicles that have already been applied in the 2018, 2019, 2020 and 2021 taxation years and have been or will be applied in the 2022 taxation year. These changes are generally relieving in nature.
Implementation of the motor vehicle expenses and benefits do result in costs for the Government of Canada in the form of foregone tax revenue which is retained by implicated businesses. However, these amendments do not create new costs for the Government beyond those that would already be incurred or are being incurred because of the automobile deduction limits and expense benefit rates for business announced in 2017, 2018, 2019, 2020, 2021,2022, and 2023.
If the regulatory amendments are not accepted, the Canada Revenue Agency would have to correct the limits and rates claimed on tax returns for 2020, 2021 and 2022. Tax returns for 2017 to 2019, inclusively, may be statute barred such that they cannot be amended, representing a loss for the Government of Canada. Adopting these changes will save additional costs associated with refiling and correcting all 2017 to 2022 tax returns that claimed incorrect amounts.
Small business lens
Analysis under the small business lens concluded that the Regulations would have a positive impact on small businesses by reflecting costs that those businesses incur, without increasing the regulatory burden small businesses face. Should these amendments not be accepted, there is a risk that small businesses would face reassessment by the Canada Revenue Agency.
One-for-one rule
The one-for-one rule does not apply, as there is no incremental change in administrative burden on businesses and no regulatory titles are repealed or introduced.
Regulatory cooperation and alignment
The amendments are intended to maintain the neutrality of the domestic tax treatment of automobiles and, therefore, are unrelated to international agreements. Furthermore, the tax treatment of automobiles will vary depending on the provincial or territorial jurisdiction. The per-kilometre automobile rates are calibrated to reflect the higher costs in certain provincial or territorial jurisdictions and to maintain neutrality. In terms of the quality of the tax neutrality, the Organisation for Economic Co-operation and Development determined in a 2014 report that Canada’s system of taxation of automobile benefits was among the most neutral among 28 countries examined.
Strategic environmental assessment
In accordance with the Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals, a preliminary scan concluded that a strategic environmental assessment is not required.
Gender-based analysis plus
No gender-based analysis plus (GBA+) impacts were identified for these Regulations.
Implementation, compliance and enforcement, and service standards
The Act provides the necessary compliance mechanisms for enforcement of the ITR. These mechanisms allow the Minister of National Revenue and the Canada Revenue Agency to assess and reassess tax payable, conduct audits and seize relevant records and documents. These regulatory amendments would come into force effective January 1 of the respective years to which they apply and would apply retroactively.
Contact
Jessica Rosebush
Tax Legislation Division
Department of Finance
Telephone: 613‑697‑8702
Email: Jessica.Rosebush@fin.gc.ca