IT-63R5 DATE: AUGUST 21, 1995
SUBJECT: INCOME TAX ACT Benefits, Including Standby Charge for an Automobile, from the Personal Use of a Motor Vehicle Supplied by an Employer – after 1992
REFERENCE: Paragraphs 6(1)(a), (e), (e.1), (k) and (l) and subsections 6(1.1), (2), (2.1), and (7) (also subsections 15(1), (1.3), (1.4), (5) and (7) and paragraph 12(1)(y))
Application
This bulletin, which describes the law for years after 1992, was revised primarily to reflect amendments to the law contained in S.C. 1994, c.21 (formerly Bill C-27). For years before 1993, refer to Interpretation Bulletin IT-63R4, dated March 31, 1994.
Summary
The value of the benefit derived by an employee from the personal use and availability of an automobile supplied by an employer is required to be included in calculating the employee’s income. This value is an amount equal to a prescribed amount (currently 12ó) per kilometre for operating costs in connection with personal use and a “reasonable standby charge” (plus the equivalent to the Goods and Services Tax (GST) on the standby charge). In general, this standby charge is 2% per month of the cost of the automobile, or 2/3 of the lease costs calculated with reference to the number of days the automobile was available to the employee or to a person related to the employee. However, this standby charge may be reduced when the personal use is less than 1,000 kilometres a month and the business-use portion of the total kilometres travelled is 90% or more, or when the employee is engaged principally in selling or leasing automobiles. Also, provided the automobile is used primarily for business purposes, an amount equal to one-half of the standby charge benefit may be used as the amount of the operating costs benefit in lieu of the 12ó per kilometre calculation.
The bulletin also describes the amount of the taxable benefit to a shareholder to whom a corporation makes an automobile available, the standby charge for a member of a partnership or for an employee of a member of a partnership, the taxable benefit to an employee when the vehicle supplied is not an “automobile” and an averaging method of determining the standby charge when different automobiles of a fleet are made available to an employee. As well as discussing in detail the points mentioned above, the commentary below explains the meaning of various relevant words and phrases such as “automobile”, “motor vehicle”, “passenger vehicle”, “personal use”, “operating costs”, “used primarily”, “all or substantially all”, “cost of an automobile”, “lease costs”, “total available days” and “employed principally in selling or leasing automobiles”. Finally, examples of how to calculate amounts to be included in income in various situations are set out and the reporting requirements are discussed.
The topics of this bulletin are discussed under the following headings:
Paragraph
Automobile Benefit Overview 1
Definitions 2 - 4
Personal Use 5
Automobile Operating Expense Benefit - Employer's Vehicle 6 - 7
Automobile Standby Charge Benefit 8 - 10
Reasonable Standby Charge 11 - 13
Calculation of Benefits 14
Individuals Employed in Selling or Leasing Automobiles 15 - 16
Employees and Members of Partnerships 17
Shareholder Benefit 18
Pooling or Similar Arrangements 19 - 21
Automobile Operating Expense Benefit
- Employee's or Partner's Vehicle 22
Other Benefits 23 - 24
Reporting Requirements 25 - 26
Discussion and Interpretation
Automobile Benefit Overview
1. For a particular taxation year, the amount to be included in the income of an employee from the use and availability of an automobile provided by the employer or a person related to the employer is the sum of
(a) the value of the benefit determined under paragraph 6(1)(k) for the operating costs related to the use of the automobile in the year that is not in connection with or in the course of the taxpayer’s office or employment,
(b) the amount that is deemed to be a reasonable standby charge for the purpose of paragraph 6(1)(e), calculated pursuant to the provisions of subsection 6(2), for the aggregate number of days in the year the automobile was available to the employee or to a person related to the employee, and
(c) an amount that is equivalent to the GST on the standby charge, which is, pursuant to paragraph 6(1)(e.1), 7% of the amount determined under (b), excluding any tax prescribed for the purposes of section 154 of the Excise Tax Act, less
(d) any reimbursements the employee or the related person makes in the year to the employer or a person related to the employer for benefits otherwise included in income for the standby charge.
By virtue of subsection 6(7), where the cost of a property or service is required to determine the benefit under paragraph 6(1)(a) (see 23 and 24 below) or paragraph 6(1)(e), the cost is determined without reference to any GST incurred on the acquisition of the property or service.
The 7% addition described in (c) does not apply where the supply is zero rated or exempt. Section 154 of the Excise Tax Act prescribes taxes, duties and fees that are in the nature of the general retail sales tax of a province, fees for the transfer of real property and taxes on a service or personal property, for example, an amusement tax or a tax on hotel rooms. These provincial taxes, duties and fees are referred to as provincial sales taxes (PST) in this bulletin. In summary, in determining the reasonable standby charge in (b) the cost of an automobile includes the PST but, pursuant to subsection 6(7), excludes the GST; however, when the equivalent to the GST in (c) is determined, and added to the benefit for the reasonable standby charge, both the GST and PST are excluded from the cost of the automobile, pursuant to subsection 6(7) and paragraph 6(1)(e.1) respectively.
Definitions
2. An "automobile" is defined in subsection 248(1) as
(a) a motor vehicle (see 3 below) that is designed or adapted
primarily to carry individuals on highways and streets and
that has a seating capacity for not more than the driver
and eight passengers, but does not include
(b) an ambulance,
(c) a motor vehicle acquired primarily for use as a taxi, a bus
used in a business of transporting passengers or a hearse
used in the course of a business of arranging or managing
funerals,
(d) except for the purpose of section 6, a motor vehicle
acquired to be sold, rented or leased in the course of
carrying on a business of selling, renting or leasing motor
vehicles or a motor vehicle used for the purpose of
transporting passengers in the course of carrying on a
business of arranging or managing funerals, and
(e) a motor vehicle of a type commonly called a van or pick-up
truck or a similar vehicle
(i) that has a seating capacity for not more than the
driver and 2 passengers and that, in the taxation year
in which it is acquired, is used primarily for the
transportation of goods or equipment in the course of
gaining or producing income, or
(ii) the use of which, in the taxation year in which it is
acquired, is all or substantially all for the
transportation of goods, equipment or passengers in
the course of gaining or producing income.
3. A “motor vehicle” is defined in subsection 248(1) to mean an automotive vehicle designed or adapted to be used on highways and streets but does not include
(a) a trolley bus, or
(b) a vehicle designed or adapted to be operated exclusively on rails.
4. A “passenger vehicle” is defined in subsection 248(1) to generally mean an automobile acquired after June 17, 1987 and an automobile leased under a lease entered into, extended or renewed after June 17, 1987.
Personal Use
5. In addition to what would obviously be considered use of a motor vehicle supplied by an employer that is not in connection with or in the course of the taxpayer’s office or employment, i.e., personal use (e.g., vacation trips, personal shopping trips, etc.), such use includes travel between the employee’s place of work and home, even though the employee may have to return to work after regular duty hours. An exception occurs, however, where (as required by the employer or with the employer’s permission) the employee proceeds directly from home to a point of call other than the employer’s place of business to which the employee reports regularly (e.g., to make repairs at customers’ premises), or returns home from such a point. These particular trips are not considered to be of a personal nature. Also, where privately owned motor vehicles are prohibited from entering a restricted area where the employment duties are performed, and the distances to be travelled within the restricted area are such that a motor vehicle is necessary, the use and availability of the employer’s motor vehicle within the restricted area is not considered to be for personal use.
Employers and employees should keep records on the use of a motor vehicle so that the total kilometres driven in a calendar year by an employee or a person related to the employee may be properly apportioned between business use and personal use.
Automobile Operating Expense Benefit – Employer’s Vehicle
6. Paragraph 6(1)(k) provides a formula for determining the amount of the automobile operating expense benefit to an employee. The formula is described in this paragraph and in 7 below. Paragraph 6(1)(k) provides that where
(a) a reasonable standby charge, as discussed in 8 below, is determined under subparagraph 6(1)(e)(i) for an automobile in calculating the income of an employee for a taxation year,
(b) the employer or a person related to the employer pays for expenses related to the operation of the automobile (“operating costs”) for periods when it was available for the personal use of the employee or a person related to the employee,
(c) the employee or a person related to the employee has not fully reimbursed the employer or a person related to the employer for all operating costs attributable to the personal use within 45 days after the end of the year,
(d) the automobile is used primarily in the performance of the employee’s duties of the office or employment (generally, the “used primarily” test will be met where more than 50% of the distance travelled by the automobile while it is available to the employee or the related person is in the performance of the employee’s duties of the office or employment), and
(e) the employee notifies the employer in writing before the end of the particular taxation year that the benefit, for the period in the year during which the automobile is made available, is to be determined under subparagraph 6(1)(k)(iv),
the amount of the benefit is the amount by which
(f) one-half of the standby charge referred to in (a) above,
exceeds
(g) the amount for the operation of the automobile reimbursed in the year or within 45 days thereafter by the employee or the person related to the employee to the employer or the person who made the automobile available.
The benefit determined under paragraph 6(1)(k) is considered to include the GST component of that benefit.
“Operating costs” include the running costs (e.g., gasoline, oil, maintenance charges and all repair expenses net of insurance proceeds) and some other costs (e.g., licenses and insurance). Operating costs do not include interest, capital cost allowance for an automobile owned by the employer, lease costs for a leased automobile or parking costs (see 24 below).
7. Where 6(a) to (c) above apply but the automobile is not used primarily in the performance of the employee’s duties of the office or employment or the employee does not satisfy the requirements described in 6(e), the value of the benefit under paragraph 6(1)(k) is the prescribed amount multiplied by the number of kilometres that the automobile was used while it was available for the personal use of the employee or a person related to the employee less any reimbursements made in the year or within 45 days thereafter. The prescribed rate is currently 12ó per kilometre unless the individual is principally employed in selling or leasing automobiles, in which case the prescribed rate is 9ó per kilometre.
Paragraph 6(1)(k) will not apply where, in the year or within 45 days thereafter, the employee or the person related to the employee, reimburses the employer for all amounts related to the personal portion of the actual operating costs (and any related GST and PST) of the automobile.
Automobile Standby Charge Benefit
8. For the purpose of paragraph 6(1)(e), subsection 6(2) sets out a formula (see 11 below) for determining the amount of a reasonable standby charge for an automobile for the aggregate number of days that the employer makes it available to an employee during the period in the year that the employer owned or leased it. In general, where an employee drives an average of at least 1,000 personal-use kilometres per month in a taxation year, the standby charge is a maximum of 2% per month of the cost (see 12 below) of the automobile, or 2/3 of the lease costs (see 13 below) if leased, for the number of days in the year that the automobile was available to the employee. Where an employee drives an average of fewer than 1,000 personal-use kilometres per month in a taxation year and
(a) the employee is required by the employer to use the automobile in connection with, or in the course of, the office or employment, and
(b) “all or substantially all” of the distance travelled by the automobile during the days in the year that it is available to the employee is in connection with, or in the course of, the office or employment,
the formula provides a reduced standby charge (see Example II below) that is equal to the amount obtained when the “general” standby charge discussed above is multiplied by the proportion that the actual personal-use kilometres are of 1,000 for each 30 days the automobile is available in the year.
With respect to the “all or substantially all” test in (b) above, the Department considers that this test is met where 90% of the distance travelled by the automobile during the available days was in connection with, or in the course of, the office or employment.
As used in this paragraph, except in (a) above, the word “employee” includes a person related to the employee and the word “employer” includes a person related to the employer.
9. Where the calculation of a reduced standby charge is made for a taxation year for an employee, on the basis of personal use by the employee (or a person related to the employee) of less than an average of 1,000 kilometres for each 30 days of availability, the employer or employee should keep records of the days in the year the automobile was available and the personal-use kilometres driven during those days. The employer should be satisfied that the personal-use kilometres declared by the employee and the business-use kilometres equals the total kilometres the automobile has been driven during the year.
10. Having calculated the amount that is a reasonable standby charge under subsection 6(2), paragraph 6(1)(e) brings into the employee’s income the amount by which the standby charge exceeds the total of the amounts the employee, or a person
related to the employee, has paid to the employer, or a person related to the employer, for the use of the automobile (other than amounts paid for the operating costs of the automobile). Amounts paid to the employer, or a person related to the employer, for the use of the automobile may include flat-rate monthly charges and per-kilometre charges. A reimbursement includes an amount withheld from an employee’s salary to reimburse the employer for the personal use of an automobile but a reduction in salary is not a reimbursement.
Reasonable Standby Charge 11. The subsection 6(2) formula for determining the reasonable standby charge referred to in 8 above is A X (2% X (C X D) + 2 X (E - F)) - -------------- B 3
where
A is the lesser of
(a) the total number of kilometres that the automobile is driven (otherwise than in connection with or in the course of the employee’s office or employment) during the “total available days” (see below in this paragraph), and
(b) the value determined for B below
except that the amount determined under (a) above shall be deemed to be equal to the amount determined under (b) above unless
(c) the employee is required by the employer or a person related to the employer to use the automobile in connection with or in the course of the office or employment, and
(d) all or substantially all of the distance travelled by the automobile in the “total available days” is in connection with or in the course of the office or employment;
B is the product obtained when 1,000 is multiplied by the quotient obtained by dividing the “total available days” by 30 and, if the quotient so obtained is not a whole number and more than one, by rounding it to the nearest whole number or, where that quotient is equidistant from two consecutive whole numbers, by rounding it to the lower of the two numbers;
C is the cost of the automobile to the employer or a person related to the employer where the employer or the related person owns the automobile at any time in the year;
D is the number obtained by dividing such of the “total available days” as are days that the employer or the related person owns the automobile by 30 and, if the quotient so obtained is not a whole number and is more than one, by rounding it to the nearest whole number or, where that quotient is equidistant from two consecutive whole numbers, by rounding it to the lower of the two numbers;
E is the total of all amounts that may reasonably be regarded as having been payable by the employer or a person related to the employer to a lessor for the purpose of leasing the automobile during such of the “total available days” as are days when the automobile is leased to the employer or the related person; and
F is the part of the amount determined for E above that may reasonably be regarded as having been payable to the lessor in respect of all or part of the cost to the lessor of insuring against
(a) loss of, or damage to, the automobile, or
(b) liability resulting from the use or operation of the automobile.
The term “total available days” used above in the formula refers to the total number of days in the taxation year during which an automobile is made available to an employee, or to a person related to the employee, by the employer, or by a person related to the employer. The total number of days includes the first day during which the automobile is so made available and each day thereafter until such time as the employee is required by the employer to return the automobile and the control over its use to the employer or a person related to the employer. An automobile is available to the employee if it is used by the employee all day or for any part of the day or even if the automobile sits unused in the employee’s garage or on the employee’s driveway or parking spot.
12. The cost of an automobile to a person who is an employer, or a person related to the employer, for the purpose of the calculations under subsections 6(2) (see 8 above and C of 11 above) and 6(2.1) (see 15(b) below) is the cost to that person, including provincial sales tax, notwithstanding that the capital cost on which the person may claim capital cost allowance may be reduced under section 67 to a reasonable amount, or may, if the automobile is a passenger vehicle, be limited under paragraph 13(7)(g) or (h) to a maximum of $20,000 or such other amount as may be prescribed. The cost of equipment (e.g., radio receiving and radio transmission equipment) required for the purpose of the business operation is not considered part of the cost of the automobile. Subsection 7307(1) of the Income Tax Regulations prescribes the amounts for paragraphs 13(7)(g) and (h), among others.
13. Subsection 6(2) (see E of 11 above) contains the expression “amounts … payable by the employer… to a lessor for the purpose of leasing the automobile”. These amounts (referred to as “lease costs”) refer to amounts (other than for the cost of insurance – see F of 11 above) that the employer or a person related to the employer is required to pay to the lessor, including
(a) kilometre charges,
(b) any charges for repairs and maintenance,
(c) provincial sales tax, and
(d) “terminal charges” (i.e., amounts charged at the end of a lease term) less “terminal credits” (i.e., amounts credited at the end of a lease term),
notwithstanding that the amount deductible by the employer or a person related to the employer may be limited under section 67.3 to a monthly maximum of $600, or such other amount as may be prescribed.
Subsection 7307(3) of the Regulations prescribes the amounts for the purposes of section 67.3. If there are terminal charges and credits and the employee(s) and employer agree, the taxable benefit arising from the lease payments will be adjusted over the term of the lease provided that none of the relevant years are statute-barred. Where a substantial lease payment is made at the beginning of the lease resulting in lower monthly lease payments, a pro-rata share of the initial payment must be added to each monthly payment over the term of the lease to determine the taxable benefit to an employee, provided the payment is in fact a lease payment and not a payment for the purchase of the automobile. The expression “substantial lease payment” is not intended to cover the usual commercial prepayments such as the first and last month rental amounts.
Calculation of Benefits
14. The following examples illustrate how to calculate the operating costs benefit under paragraph 6(1)(k), the standby charge under paragraph 6(1)(e) and the GST equivalent on the standby charge under paragraph 6(1)(e.1) for 1994. In addition to the specific assumptions in each example it is also assumed that the employee is required by the employer to use the automobile and that the employer is paying for all of the operating expenses of the automobile.
Example I
Employer-owned automobile
Assumptions:
Cost to employer of automobile, including $1,000 of PST
but excluding GST $15,000
Number of days automobile was available to employee 365
Total kilometres driven in the year 24,000
Personal-use kilometres driven in the year 8,000
Reimbursement by employee for use of automobile $ 1,800
Paragraph 6(1)(k) benefit for the operating expenses:
8,000 km X $.12 per km = $ 960
Paragraph 6(1)(e) standby charge:
12,000(*1) X (2% X (15,000 X 12(*2)) + 0(*3)) = $ 3,600
------
12,000
GST equivalent on standby charge under paragraph 6(1)(e.1):
7% X (12,000 X (2% X ((15,000 - 1,000)(*4) X 12(*2))) + 0(*3))=$ 235
(------ )
(12,000 )
-------
Total benefits under paragraphs 6(1)(k), (e) and (e.1) $ 4,795
Less reimbursement for use of automobile $ 1,800
-------
Amount of automobile benefit to be reported and
included in income(*5) $ 2,995
=======
(*1) Since the business-use kilometres are not at least 90% of the
total kilometres, the numerator is deemed to be equal to the
denominator (see A(d) of 11 above).
(*2) This number cannot exceed 12 and represents the fraction 365/30
rounded to the nearest whole number (see D of 11 above).
(*3) Since there is no lease, the latter part (i.e.,"+ 2/3 X (E - F)")
of the formula referred to in 11 above can be ignored.
(*4) The PST is excluded in calculating the GST equivalent on the
benefit pursuant to subparagraph 6(1)(e.1)(ii).
(*5) The alternative calculation of the automobile benefit would be
$1,800 - 1/2 of $3,600 (see 6 above)
3,600 - standby charge and
235 - 7% GST equivalent on the standby charge - as
------ calculated above
$5,635 - total benefits under paragraphs 6(1)(e), (e.1) and (k),
less
1,800 - reimbursement for use of the automobile
------
$3,835 - amount to be reported in income
======
Example II
Employer-owned automobile
Assumptions:
Employer requires employee to use automobile for
employment purposes
Cost to employer of automobile, including
$1,500 of PST but excluding GST $20,000
Number of days automobile was available to employee 365
Total kilometres driven in the year 40,000
Personal-use kilometres driven in the year 2,000
Reimbursement by employee for use of automobile $ 300
Paragraph 6(1)(k) benefit for the operating expenses:
2,000 km x $.12 per km = $ 240
Paragraph 6(1)(e) standby charge:
2,000(*1) x (2% x (20,000 x 12(*2)) + 0(*3)) = $ 800
------
12,000
GST equivalent on standby charge under paragraph 6(1)(e.1):
7% x (2,000 x (2% x ((20,000 - 1,500)(*4) x 12(*2))) + 0(*3)))=$ 52
(----- )
(12,000 )
-------
Total benefits under paragraphs 6(1)(k), (e) and (e.1) $ 1,092
Less reimbursement for use of automobile $ 300
-------
Amount of automobile benefit to be reported
and included in income $ 792
=======
(*1) Since the business-use kilometres are at least 90% of the total
kilometres, and since the employee is required to use the
automobile in connection with or in the course of the office or
employment, the standby charge is reduced (see 8 above).
(*2) This number cannot exceed 12 and represents the fraction 365/30
rounded to the nearest whole number (see D of 11 above).
(*3) Since there is no lease, the latter part (i.e.,"+ 2/3 x (E - F)")
of the formula referred to in 11 above can be ignored.
(*4) The PST is excluded in calculating the GST equivalent on the
benefit pursuant to subparagraph 6(1)(e.1)(ii).
Example III
Employer-leased automobile
Assumptions:
Lease costs of automobile for the year, including PST of
$900 but excluding GST $ 8,800
Insurance costs included in the $8,800 $ 1,000
Number of days automobile was available to employee 365
Total kilometres driven in the year 24,000
Personal-use kilometres driven in the year 8,000
Reimbursement by employee for use of automobile $ 1,800
Paragraph 6(1)(k) benefit for the operating expenses:
8,000 km at $.12 per km = $ 960
Paragraph 6(1)(e) standby charge:
12,000(*1) x (0(*2) + 2/3 x (8,800 - 1,000(*3))) = $ 5,200
------
12,000
GST equivalent on standby charge under paragraph 6(1)(e.1):
7% x (12,000(*1) x (0(*2) + 2/3 x (8,800 - (1,000(*3) + 900(*4)))))=$ 322
(------ )
(12,000 )
-------
Total benefits under paragraphs 6(1)(k), (e) and (e.1) $ 6,482
Less reimbursement for use of automobile $ 1,800
-------
Amount of automobile benefit to be reported and
included in income $ 4,682
=======
(*1) Since the business-use kilometres are not at least 90% of the total kilometres, the numerator is deemed to be equal to the denominator (see A(d) of 11 above).
(*2) Since the employer did not own the automobile at any time in the year, the middle part (i.e., “2% x (C x D)”) of the formula referred to in 11 above can be ignored.
(*3) As noted in 6 above, insurance is viewed as an operating cost.
(*4) The PST is excluded in calculating the GST equivalent on the benefit pursuant to subparagraph 6(1)(e.1)(ii).
Individuals Employed in Selling or Leasing Automobiles
15. Where an individual is employed principally in selling or leasing automobiles, subsection 6(2.1) provides two changes in the calculation of a standby charge for a particular taxation year where an automobile owned by an employer is made available by the employer to the employee, or to a person related to the employee, and the employer has acquired one or more automobiles in the year. At the option of the employer, the standby charge may be calculated pursuant to subsection 6(2) with the following changes:
(a) the reference in the subsection 6(2) formula to “2%” is read as “1 1/2%”, and
(b) the cost of the automobile (see C of 11 above) to the employer is the greater of
(i) the average cost of all new automobiles acquired in the year for sale or lease in the course of the employer’s business, and
(ii) the average cost of all automobiles acquired in the year for sale or lease in the course of the employer’s business.
16. It is a question of fact whether an individual is “employed principally in selling or leasing automobiles”. Usually an individual would be considered to be so employed when most of the individual’s time and effort was spent directly in selling or leasing automobiles. Employees in managerial positions (e.g., general managers and sales managers) may be eligible for subsection 6(2.1) treatment if they meet the principal employment criterion described above. However, senior executives who are, for the most part, engaged in the administration of the business do not meet this criterion. Parts managers, service managers and similar employees are not usually eligible for subsection 6(2.1) treatment, for the same reason. Where subsection 6(2.1) does not apply, subsection 6(2) applies to the calculation of the reasonable standby charge referred to in paragraph 6(1)(e).
Employees and Members of Partnerships
17. Paragraph 12(1)(y) provides that where a taxpayer is an individual who is a member of a partnership, or an employee of a member of a partnership, and the partnership makes an automobile available in the year to the taxpayer or to a person related to the taxpayer, the taxpayer must include in income an amount that would be included in income under paragraphs 6(1)(e) and (e.1) (as it relates to the standby charge) as if the taxpayer were an employee of the partnership.
Shareholder Benefit
18. The above guidelines may generally be applied to a shareholder of a corporation. Subsection 15(5) provides that, for the purpose of subsection 15(1), the value of the benefit to be included in a shareholder’s income when an automobile is made available to such a person (or to a person related to that person) by a corporation, whether or not resident or carrying on business in Canada, is calculated on the assumption that subsections 6(1), (1.1) and (2) apply with such modifications as are required in the circumstances, and as though the references therein to “employer” were read as references to “corporation”.
By virtue of subsection 15(1.3), where the cost of a property or service is required for the purpose of determining the benefit under subsection 15(1), the cost is determined without reference to any GST incurred on the acquisition of the property or service.
Where a shareholder is also an employee and an automobile is made available to the shareholder (or to a person related to the shareholder) in the capacity of an employee, the benefit is included in income under section 6 as income from employment, rather than under section 15 as a benefit conferred on a shareholder.
Pooling or Similar Arrangements
19. An employee may have different automobiles available for personal use during a particular year out of a large fleet owned or leased by the employer. Operating costs (see 6 above) for a fleet of automobiles may not be pooled or averaged for the purpose of determining the paragraph 6(1)(k) benefit referred to in 1(a) above. The operating costs that apply to personal use of an automobile must be calculated and attributed to the specific employees on the basis of the actual personal use made of the employer’s automobiles. However, where an employer self-insures leased automobiles and pays for costs that would otherwise be paid under insurance claims (e.g., the cost of repairing a damaged leased automobile or a third party’s vehicle), such costs represent operating costs of the employer’s fleet of leased automobiles and may be averaged over all the drivers of those automobiles for the purpose of determining the taxable benefit arising from the employer’s payment. The alternative method discussed in 7 above of calculating the paragraph 6(1)(k) benefit is available notwithstanding that the standby charge may have been calculated using an averaging method as discussed below.
20. Ordinarily, the standby charge for the different automobiles is determined for the period that each is made available to the employee or a person related to the employee. However, where the employer and employee agree, and the employee is not assigned an automobile on a long-term or exclusive-use basis, the following averaging method is acceptable for the purpose of determining the standby charge:
(a) for the purpose of C in 11 above (the cost of purchased automobiles), all automobiles made available to the employee or a person related to the employee at any time during the calendar year are grouped into purchase-cost dollar ranges not exceeding $5,000 and the average cost for automobiles in each range is determined;
(b) for the purpose of E in 11 above (amount payable for leased automobiles), all leased automobiles made available to the employee or a person related to the employee at any time during the calendar year are grouped into lease-cost dollar ranges not exceeding $1,200, on the assumption that each automobile has been leased for the whole year. The average lease cost for automobiles in each range is determined and the weighted-average lease cost for all ranges is determined;
(c) the cost of purchase or lease cost to the employer of each automobile made available for the personal use of the employee or a person related to the employee from a price range is considered to be the average cost of purchase or average lease cost for all automobiles of that range; and
(d) once the average cost of purchase or weighted-average lease cost of an automobile is determined, the employee’s standby charge for the use of automobiles from each price range is calculated in the usual manner pursuant to subsection 6(2) and paragraph 6(1)(e).
21. For the purpose of calculating the standby charge, Example IV below illustrates the average method for automobiles owned by the employer and Example V below illustrates the average method for automobiles leased by the employer.
Example IV
Assumptions: From the following purchase-cost dollar ranges for the
employer's fleet of automobiles, an employee has these available for
personal use:
(a) automobiles from the $12,000 - $16,999 range for three months
of the year
(b) automobiles from the $17,000 - $21,999 range for the remainder
of the year and
(c) PST is included in the purchase price but GST is excluded.
Purchase Purchase Cost Ranges
--------------------
Cost $12,000 - $16,999 $17,000 - $21,999
-------- ----------------- -----------------
12,600 12,600
20,000 20,000
21,800 21,800
17,800 17,800
12,800 12,800
14,900 14,900
16,000 16,000
17,500 17,500
15,600 15,600
21,000 21,000
------- -------
$71,900 $98,100
======= =======
Average Purchase Cost $14,380 $19,620
======= =======
Standby Charge:
(a) automobiles in the $12,000 - $16,999
range for three months:
3,000(*1) x (2%(*2) x ($14,380 x 3(*3))) = $ 863
-----
3,000
(b) automobiles in the $17,000 - $21,999
range for nine months:
9,000(*1) x (2%(*2) x ($19,620 x 9(*3))) = 3,532
----- -------
9,000
Total Standby Charge(*4) $ 4,395
=======
(*1) Assumes that less than 90% of the distance travelled during the
available days was in connection with the employee's employment.
(*2) Assumes that the employee was not engaged in selling or leasing
automobiles.
(*3) Assumes that employer owned the automobiles in each range only
for the period of time the automobiles in that range were used by
the employee.
(*4) This is comparable to the amount identified as the "Paragraph
6(1)(e) standby charge" in 14 above, Example I.
Example V
Assumptions: From the following lease-cost dollar ranges for the
employer's fleet of automobiles, an employee has these available for
personal use:
(a) automobiles from the $3,000 - $4,199 range for 120 days of
the year
(b) automobiles from the $4,200 - $5,399 range for the remaining
245 days of the year and
(c) PST is included in the lease cost but GST is excluded.
Yearly(*1)
Lease Lease Cost Ranges
Cost -----------------
$3,000 - $4,199 $4,200 - $5,399
--------- --------------- ---------------
3,040 3,040
3,050 3,050
4,400 4,400
4,900 4,900
3,000 3,000
3,150 3,150
3,110 3,110
4,700 4,700
4,600 4,600
------- -------
$15,350 $18,600
======= =======
Average lease
cost per range $ 3,070 $ 4,650
======= =======
Weighted average lease cost calculation
(($3,070 x 120) + ($4,650 x 245)) = $ 4,131
--------------------------------- =======
365
Standby Charge(*2) (assuming personal-use kilometres
are at least 1,000 per month)
12,000 x (2 x ($4,131 - 0)) = $ 2,754
------ --------------- =======
12,000 3
(*1) The lease costs are net of inherent insurance costs (see F of 11 above), which is the reason for the zero in the above calculation.
(*2) This is comparable to the amount identified as the “Paragraph 6(1)(e) standby charge” in 14 above, Example III.
Automobile Operating Expense Benefit – Employee’s or Partner’s Vehicle
22. Paragraph 6(1)(l) includes in income the value of any benefit received by an employee where the employer pays the operating costs (including both PST and GST) of an employee’s automobile or where a partnership pays the operating costs of an automobile supplied by a partner to the partner’s employee. The value of the benefit is calculated by determining the ratio of the personal use kilometres to the total kilometres multiplied by the operating costs of the vehicle paid by the employer or partnership. The benefit is reduced by the amount of any reimbursement made by the employee to the employer or partnership.
Other Benefits
23. Motor vehicles such as trucks, buses, motor homes, etc., which are not included in the definition of “automobile” (see 2 above) for the purposes of paragraph 6(1)(e) or 6(1)(k), may also be subject to personal use. Although there is no standby charge for the availability of these vehicles, a taxable benefit under paragraph 6(1)(a) may apply. Where a benefit must be added to income under paragraph 6(1)(a) as a result of the personal use of a motor vehicle other than an automobile, the employer must reasonably estimate the fair market value to the employee of that benefit and increase it by an amount (see 1(c) above) to reflect the equivalent of the GST. The amount an employee would have had to pay in an arm’s length transaction for the use of comparable transportation can be considered to be the fair market value of the actual benefit. In this regard, the amount an employee would usually pay in an arm’s length transaction would include items such as the cost of leasing a comparable vehicle as well as any other related operating costs but, pursuant to subsection 6(7), excluding the GST. A benefit calculated on the basis of an apportionment of the employer’s operating costs and capital cost allowance does not necessarily represent the value of the benefit to the employee unless that apportionment approximates the amount the employee would have had to pay for the use of the vehicle when used for the purpose for which it was designed. On the other hand, where a motor vehicle other than an automobile is essential to the employer’s business operation, and its only personal use is to provide transportation between an employee’s residence and the employer’s business premises, it may be appropriate to calculate the benefit to the employee on a cents-per-kilometre basis for equivalent automobile transportation. The rates prescribed in section 7306 of the Regulations will usually be accepted in this situation.
24. Subsection 6(1.1) provides that an amount or a benefit for the use (which includes the operation) of a motor vehicle by a taxpayer does not include any amount or benefit related to the parking of the vehicle. Since paragraphs 6(1)(k) and (l) are concerned with benefits related to the operation of an automobile, any benefit related to parking an automobile is not included in income under those paragraphs. However, benefits related to parking are included in income under paragraph 6(1)(a) while an amount that is equivalent to the GST on the parking is included in income under paragraph 6(1)(e.1). No benefit for parking is imputed for parking costs related to business travel.
Reporting Requirements
25. The value of a benefit from a motor vehicle provided to
(a) an employee or a person related to the employee, or
(b) an individual who is both a shareholder and an employee and the motor vehicle is provided to the individual (or a person related to the individual) in the capacity of an employee
is to be included in the income from employment of the employee or individual and reported on a T4 Supplementary in Boxes 14 and 34.
26. The value of a benefit from a motor vehicle provided to
(a) a shareholder (or a person related to the shareholder) who is not an employee, or
(b) an individual who is both a shareholder and an employee and the motor vehicle is provided to the individual (or a person related to the individual) in the capacity of a shareholder
is to be reported on a T4A Supplementary in Box 28 – Other Income.
If you have any comments regarding the matters discussed in this bulletin, please send them to:
Director, Technical Publications Division Policy and Legislation Branch Revenue Canada 875 Heron Road Ottawa ON K1A 0L8
Explanation of Changes for Interpretation Bulletin IT-63R5 Benefits, Including Standby Charge for an Automobile, from the Personal Use of a Motor Vehicle Supplied by an Employer – after 1992
Introduction
The purpose of the Explanation of Changes is to explain the reasons for the revisions to an interpretation bulletin. It outlines revisions that we have made as a result of changes to the law, as well as changes reflecting new or revised departmental interpretations.
Overview
This bulletin describes the valuation of the benefit an employee derives from the personal use and availability of an employer’s motor vehicle.
The bulletin reflects amendments to the Income Tax Act resulting from S.C. 1994, c.21 (formerly Bill C-27) and the addition of section 7305.1) of the Income Tax Regulations.
Legislative and Other Changes
The Summary notes that the value of the benefit in connection with operating costs that an employee derives from the personal use of an automobile supplied by an employer is currently calculated at the rate of 12ó per kilometre for personal use. The Summary also describes that an amount equal to one-half of the standby charge benefit may be used as the amount of the operating cost benefit in lieu of the 12ó per kilometre charge where the automobile is used primarily for business purposes. A table of contents follows the Summary.
Number 1 reflects the Bill C-27 amendment to paragraph 6(1)(a) which deleted the operating cost benefit from that paragraph and added paragraph 6(1)(k) to describe that benefit. The discussion of zero rated and exempt supply has been deleted when compared to number 1 of IT-63R4 since these supplies are generally not relevant to this bulletin. The calculation of the benefits for the standby charge and the equivalent to the GST on the standby charge are also described.
Number 6 reflects the Bill C-27 amendment which added paragraph 6(1)(k) to describe the operating cost benefit. The operating cost benefit under paragraph 6(1)(k) is considered to include the GST component of that benefit. Number 6 describes one method of calculating the benefit as being one-half of the standby charge minus any reimbursements made in the year or within 45 days after the year end. Personal and business related parking costs which were mentioned in number 6 of IT-63R4 are discussed in number 24 of this bulletin.
Number 7 also reflects the Bill C-27 amendment which added paragraph 6(1)(k). Number 7 describes the alternate method of calculating the operating cost benefit as being the product of the prescribed rate multiplied by the number of kilometres that the automobile was personally used minus any reimbursements made in the year or within 45 days after the year end. Currently, the prescribed rate is 12ó per kilometre except for individuals who are primarily employed in selling or leasing automobiles, in which case the prescribed rate is 9ó per kilometre.
Number 10 is similar to number 10 of IT-63R4 but the comments concerning paragraph 12(1)(y) have been moved to number 17 in this bulletin.
Numbers 12 and 13, which are similar to numbers 11 and 12 of IT-63R4, do not repeat the description of subsections 7307(1) and (3) of the Regulations. These descriptions are not particularly relevant to this bulletin.
Number 14 does not repeat the reference to the operating costs paid by the employer as was done in number 16 of IT-63R4 in the Assumptions in the Examples since such assumptions are no longer necessary in determining the amount of the operating cost benefit under paragraph 6(1)(k). The Examples in this bulletin have been revised to reflect the operation of paragraph 6(1)(k) rather than paragraph 6(1)(a).
Number 16 consolidates numbers 18 and 19 of IT-63R4.
Number 18 (number 14 of IT-63R4) reflects the Bill C-27 amendments to subsections 15(1.4) and (5). Subsection 15(1.4), which generally adds the equivalent to the GST to shareholder benefits, has been amended to except subsection 15(5) from its application. Subsection 15(5), which provides the general rules for determining the benefit that a shareholder of a corporation derives from use of an automobile of the corporation, has been amended to reflect the changes in section 6 so that a shareholder’s automobile benefits will continue to be calculated in generally the same manner as the automobile benefits of an employee who uses an employer-supplied automobile.
Number 22 reflects the introduction of paragraph 6(1)(l) in Bill C-27. The paragraph includes in income the benefit received by an employee where an employer pays operating costs of the employee’s automobile.
Number 24, part of number 6 of IT-63R4, reflects the introduction of subsection 6(1.1) in Bill C-27. The subsection provides that the amount or benefit for the use of a motor vehicle by a taxpayer does not include any amount or benefit relating to the parking of the vehicle.
Number 25 is a consolidation of numbers 23 and 24 of IT-63R4 and describes the reporting of benefits in connection with a motor vehicle where an individual receives the benefits in the capacity of an employee.
Number 26 is a consolidation of numbers 25 and 26 of IT-63R4 and describes the reporting of benefits in connection with a motor vehicle where an individual receives the benefits in the capacity of a shareholder.
Throughout the bulletin we have deleted observations which are no longer relevant and we have revised some of the wording to improve readability without altering the substance.