Automobile Benefits

The issue of employer provided automobiles to employees is discussed HERE.

Operating Cost Benefit Calculation

CRA has indicated that all expenses associated with an automobile are operating costs. When the employer pays these costs the employee or shareholder (but not Partners) may enjoy a benefit based on the personal use of the vehicle. There are two optional ways to calculate the benefit and both calculations are reduced by amounts repaid by the employee/shareholder within 45 days of the end of the calendar year to which the costs relate:

1. A fixed amount per kilometre of personal use. Click HERE for a table of the amounts. There are two rates depending on whether the taxpayer is a general employee/shareholder or whether the employee/shareholder's  principal source of employment is selling or leasing automobiles. 

2. Where a standby charge applies (see below) and where the personal use is less than 50% of the total kilometres, then the benefit may be calculated at 50% of the standby charge.

Standby Charge Benefit Calculation

CRA has a formula calculation of the standby charge benefit and it applies to employees, shareholders, and partners. The concept is that the taxpayer enjoys a benefit from merely having an automobile available for use - regardless of whether it was actually used.

The benefit is calculated monthly at 2% of the original capital cost of the vehicle per month or 2/3 of the lease cost of the vehicle per month for each month the vehicle is made available for use to the employee. The result of this calculation can be reduced on two conditions:

1. The vehicle is used primarily (generally over 50%) for business purposes and not personal use

2. AND,  the taxpayer is required by the employer to use the automobile in the course of employment.

If both of the above conditions exist, then the standby charge is multiplied by a fraction as follows:

Lesser of:

1. personal use kilometres

2. 1,667 X number of months made available

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1,667 X number of months made available

The fraction, depending on the circumstances, can reduce the standby charge.

CRA expects taxpayers to maintain detailed travel logs to backup the calculations of all benefits. Failure to keep a log will result in CRA applying their own judgement on the calculation which may not be favourable to the taxpayer. If you are claiming automobile expenses relating to the use of your vehicle at work, you must maintain a log book indicating the total kilometres you drove in the year and the kilometres you drove to earn employment income. The log book should also contain the date, destination, and the distance traveled for each trip. Make sure that you record the odometer reading of the vehicle at the beginning and end of each year.

For taxpayers who are primarily engaged in leasing or selling vehicles, the standby charge amount of 2% per month is reduced to 1.5% of the average cost of automobile inventory acquired by the employer during the year. 

CRA has an Online Calculator to calculate the benefits HERE.

There are tax planning opportunities to mitigate the problem of taxable automobile benefits discussed HERE.

Employee/Shareholder benefits are a complicated area and a Chartered Accountant should be consulted. Contact Keith Anderson CA at (780) 447-5830 if you need advice. 

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