29 March 2004 GST/HST Interpretation 50367 - Method to be Used in Calculating GST on Automobile Operating Expense Benefits

Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.

This is in response to your e-mail regarding the correct method of calculating the GST on an automobile operating cost benefit.

In the scenario presented, a corporation made an automobile available to a shareholder for 365 days of the year. Based on kilometres travelled, the shareholder's personal use of the automobile was 25% of the total use for the year. The shareholder did not reimburse the corporation for any of the operating costs associated with the shareholder's personal use of the automobile.

The corporation has chosen to calculate the amount of the benefit which is required to be included in the shareholder's income pursuant to subsection 15(1) of the Income Tax Act (ITA), by multiplying the number of kilometres that the automobile was used while it was available for the personal use of the shareholder by a prescribed rate per kilometre. The corporation did not elect to use the alternate method.

Interpretation Requested

You ask if the GST collectible on an automobile expense operating cost benefit provided to a shareholder is calculated as 5% of the amount of the benefit as provided for in clause 173(1)(d)(vi)(A) of the Excise Tax Act (ETA) or, because the benefit is imposed under subsection 15(1) of the ITA, as 6/106 of the benefit amount pursuant to clause 173(1)(d)(vi)(B) of the ETA.

Interpretation Given

Subsection 173(1) of the ETA applies where a registrant makes a supply (other than an exempt or zero-rated supply) of property or service to an employee or shareholder of the registrant where the supply is considered to be a taxable benefit under paragraphs 6(1)(a), (e), (k) or (l) or subsection 15(1) of the ITA.

With respect to a taxable benefit that is or would, if the individual were an employee of the registrant and no reimbursements were paid, be required under paragraph 6(1)(k) or (l) of the ITA to be included in the individual's income, clause 173(1)(d)(vi)(A) of the ETA provides that for purposes of determining the net tax of the registrant, the tax calculated on the total consideration for an automobile operating expense benefit is deemed to be equal to the prescribed percentage of the total consideration.

The Automobile Operating Expense Benefit (GST/HST) Regulations (the Regulations) were amended to provide that for the purposes of clause 173(1)(d)(vi)(A) of the ETA, the prescribed percentage is 5%.

In addition, paragraph 2(a)(ii) of the Regulations specifically applies to the operating expense benefit of an individual who is a shareholder and the benefit amount is required to be included in the shareholder's income.

Should you have any further questions regarding this matter, please do not hesitate to contact me at (613) 954-7931.