Automobile Benefits

Whether you're an employer (including a corporation you own) responsible for correctly reporting taxable benefits or an employee in receipt of taxable benefits, you need to be informed. Although there are a variety of benefits that are taxable, automobile benefits are among the most common. So read on for some general information on automobile benefits bearing in mind that this is an introduction to the topic.

An automobile is considered to be available to an employee if that employee has access to or control over the automobile. Personal driving is any driving for reasons not related to the employee's employment - including travel between home and the place of employment. If there is no personal use, there is no taxable benefit, even if the automobile was available to the employee.

Where there is personal use, the taxable benefit that must be reported on a T4 slip consists of two parts - a standby charge and an operating benefit. The standby charge represents the benefit an employee receives when the employer's automobile is available for his/her personal use. Where the employer pays for the operating expenses of the automobile, the operating benefit represents the portion of those expenses related to personal use.

In general, the standby charge is 2% per month of the car's original cost (including GST and PST, but not including any reduction for a trade-in), or 2/3rds of the monthly lease costs, calculated with reference to the number of days the automobile was available to the employee. Where the employee is required to use the employer's automobile in the course of the employer's business, then if the employee's personal travel during the year is less than 20,000 km (1,667 km per month) and more than half of the employee's travel is business travel, the standby charge may be reduced. The reduction factor is equal to the number of kilometres driven personally divided by 20,000 kilometres.

In general, if the employer pays any amount of operating expenses of the automobile, there is an operating cost benefit. The amount of this benefit is, for 2004, $0.17 per kilometre of personal use. For 2005, the rate is $0.20 per kilometre of personal use. Where the employee reimburses the employer in the year or within 45 days after the end of the year, for all operating expenses attributable to personal use, there is no operating benefit to be included in employment income. If the employee reimburses the employer for part of the automobile's operating costs, the amount reimbursed is deducted from the originally calculated benefit.

There is an optional method for calculating the operating benefit. Where a standby charge has been included in the employee's income, the employee used the automobile more than 50% of the time for employment purposes, and the employee notifies the employer in writing before the end of the taxation year to use this method, then the operating cost benefit can be calculated as 1/2 of the standby charge - before deducting any reimbursements made by the employee. Obviously this is only preferential if it results in a lower taxable benefit.

Where the employer is a GST registrant, there is a GST element to certain taxable benefits, including taxable automobile benefits. The logic behind this is that the employer would have claimed an input tax credit (ITC) at the time of incurring the expense or outlay (e.g. purchase of vehicle, repair costs, etc). By adding the benefit to the employee's income, the employee is now the one to have incurred a portion of the GST ITC's previously claimed by the employer. The employer is considered to have collected GST on the taxable benefit at the end of February in the following calendar year (i.e. T4 filing deadline). The employer has to include this amount as GST collected in the GST return for the reporting period that includes the last day of February. The amount of GST considered to be collected equals 6/106ths of the standby charge and 5% of the value of the operating benefit (before any reimbursement by the employee).

As you can see, taxable benefits are not always straight forward and can have implications beyond the obvious. It's never a bad idea to get assistance - from your human resources/payroll department, the Canada Revenue Agency, or your accountant.

Caren MacLeod
Scott, Rankin & Gardiner Chartered Accountants
www.srgg.com