29 April 2004 External T.I. 2004-0059511E5 - Motor vehicle benefits

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 employees are subject to taxable employment benefits that are calculated on a basis other than using the "standby charge", because the pick-up trucks are not considered "automobiles" under the Act.

Position: Question of fact.

Reasons: Certain vans, pick-up trucks or similar vehicles are excluded from the definition of automobile in subsection 248(1), depending on their use in transporting goods, equipment or passengers in the course of gaining or producing income. For example, subparagraph (e)(i) excludes such a vehicle that "has a seating capacity for not more than the driver and two passengers and that, in the taxation year in which it is acquired or leased, is used primarily for the transportation of goods or equipment in the course of gaining or producing income". Subparagraph (e)(ii) excludes such a vehicle "the use of which, in the taxation year in which it is acquired or leased, is all or substantially all for the transportation of goods, equipment or passengers in the course of gaining or producing income". Subparagraph (e)(iii) excludes a motor vehicle of a type commonly called a pick-up truck that is used in the taxation year in which it is acquired or leased primarily for the transportation of goods, equipment or passengers in the course of earning or producing income at one or more locations in Canada that are, in respect of any of the occupants of the vehicle, a special work site pursuant to subparagraph 6(6)(a)(i) or a remote work location pursuant to subparagraph 6(6)(a)(ii). The subparagraph (e)(iii) exception only applies where the taxpayer was required by the taxpayer's duties to be away from the taxpayer's principal place of residence, or to be at the special work site or location, for at least 36 hours.

XXXXXXXXXX 2004-005951
Kathryn McCarthy, CA
April 29, 2004

Dear XXXXXXXXXX,

Re: Motor Vehicle Benefits

We are writing in response to your letter of January 27, 2004, concerning the above-noted issue.

You indicated that your company is a specialized transport company that has fleets of trucks based in XXXXXXXXXX. The trucks are crew cabs, heavy-duty pick-up trucks and one service truck. The trucks are rigged with equipment to assist in the loading of over-sized, odd shaped objects and are used to transport goods primarily between XXXXXXXXXX. Two of the pick-up trucks are used to travel in front of and behind each load of goods that is shipped ("pilot vehicles"). The driver of each pilot vehicle takes the pick-up truck home after each shift and has access to it for personal purposes. You inquired whether the employees who use the pilot vehicles are subject to taxable employment benefits that are calculated on a basis other than using the "standby charge", because the pick-up trucks are not considered "automobiles" under the Income Tax Act (the Act).

Our Comments

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 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. We are, however, prepared to provide the following general comments.

The taxation of employee benefits for the personal use of an employer provided "motor vehicle" is described in 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. The value of the benefit derived by an employee from the personal use and availability of a motor vehicle supplied by an employer is required to be included in calculating the employee's income under the Act.

Determining the value of a motor vehicle benefit to include in an employee's income depends, in part, on whether the vehicle in question is an automobile as defined under section 248(1) of the Act. Employee benefits for the use of an automobile are included in income under paragraph 6(1)(e) as standby charges and depend upon factors such as whether the vehicle is available for employee use, and the personal versus business use of the vehicle. Employee benefits for the use of motor vehicles other than automobiles are included in income under paragraph 6(1)(a). The value of a motor vehicle benefit under paragraph 6(1)(a) is based on a reasonable calculation of the benefit derived by the employee, which can vary in differing circumstances, again depending upon such factors as personal use of the vehicle.

IT-63R5 explains what constitutes personal use of an employer provided motor vehicle at paragraph 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.

Certain vans, pick-up trucks or similar vehicles are excluded from the definition of automobile in subsection 248(1) of the Act, depending on their use in transporting goods, equipment or passengers in the course of gaining or producing income. For example, subparagraph (e)(i) excludes such a vehicle that "has a seating capacity for not more than the driver and two passengers and that, in the taxation year in which it is acquired or leased, is used primarily for the transportation of goods or equipment in the course of gaining or producing income". Subparagraph (e)(ii) excludes such a vehicle "the use of which, in the taxation year in which it is acquired or leased, is all or substantially all for the transportation of goods, equipment or passengers in the course of gaining or producing income". Subparagraph (e)(iii) excludes a motor vehicle of a type commonly called a pick-up truck that is used in the taxation year in which it is acquired or leased primarily for the transportation of goods, equipment or passengers in the course of earning or producing income at one or more locations in Canada that are, in respect of any of the occupants of the vehicle, a special work site pursuant to subparagraph 6(6)(a)(i) or a remote work location pursuant to subparagraph 6(6)(a)(ii). The subparagraph (e)(iii) exception only applies where the taxpayer was required by the taxpayer's duties to be away from the taxpayer's principal place of residence, or to be at the special work site or location, for at least 36 hours.

In the situation you describe, the exception to the definition of automobile in subsection 248(1) at subparagraph (e)(iii) related to special work sites and remote work locations does not apply because the employees return home on a daily basis. The exceptions described in subparagraphs (e)(i) and (e)(ii) may apply, depending on factors such as the personal versus business use of the pick-up trucks. It should be noted, however, that if a pick-up truck is excepted from the definition of automobile pursuant to subsection 248(1), a taxable employment benefit related to personal use will nevertheless apply pursuant to paragraph 6(1)(a) of the Act. Since this determination is fact specific, you may wish to take your enquiry to your local Tax Services Office for further assistance.

The above noted publications are available on our website at www.cra-arc.gc.ca. We trust our comments will be of assistance to you.

Yours truly,

Randy Hewlett, B. Comm.

for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch