Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Whether a terminal charge on a leased automobile should be included in the calculation of a standby charge.
Position: Yes.
Reasons: The amount is part of the employer's cost of leasing the automobile.
XXXXXXXXXX Randy Hewlett, B. Comm.
2004-005726
February 26, 2004
Re: Taxable Benefit - Terminal Charge On A Leased Automobile
We are writing in response to your inquiry on the above-noted issue.
We understand that your employment was recently terminated and the leased automobile made available to you by your employer was retuned to the dealership. Because the automobile was returned after the first year of a four-year lease, your employer was required to pay the dealer a "terminal charge" on the lease. You inquired whether the terminal charge should be included in the calculation of the benefit you enjoyed in respect of your use of the automobile.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we offer the following general comments.
The value of a benefit derived by an employee from the personal use and availability of an automobile supplied by his or her employer, is required to be included in calculating the employee's income. The benefit includes a "standby charge" and an amount for the operating costs related to the employee's personal use of the automobile. The standby charge is calculated using a formula that takes into account the employer's cost of the automobile, the number of days in the year it was made available to the employee, and the employee's personal usage of the automobile in relation to its business usage. When calculating the standby charge on a leased automobile, a terminal charge at the end of a lease is included the employer's cost of leasing the automobile for that year.
As an alternative to including the terminal charge in the calculation of the standby charge for the taxation year in which it was incurred by the employer, the amount can be included on a prorated basis in the calculation of the standby charge for each taxation year in which the employee enjoyed a benefit in respect of the personal use and availability of the automobile. The employer would have to amend the T4 or T4A slips for previous taxation years and the employee would have to write to a tax services office or tax centre and request the adjustment. The employee cannot use this alternative method for taxation years that are beyond the normal reassessment period.
We trust our comments are of assistance.
Yours truly,
John Oulton, CA
Manager
Business and Individual Section
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch
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