26 May 2004 External T.I. 2004-0066911E5 - Automobile Standby Charge

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 the standby charge may be calculated using the average cost of all automobiles held by the employer on one particular day in the year as opposed to using the average cost of all automobiles acquired by the employer throughout the year.

Position: No.

Reasons: In computing the standby charge using subsection 6(2.1) for employees who sell or lease automobiles, the employer cannot use the average cost of automobiles that it owned on any given day throughout the year but must use the average cost of all such automobiles that it owned throughout the year.

XXXXXXXXXX Randy Hewlett, B. Comm.

2004-006691
May 26, 2004

Dear XXXXXXXXXX:

Re: Taxable Benefit - Automobile Standby Charge

We are writing in response to your letter of March 12, 2004, regarding the above noted issue.

You indicated that your company (the "employer") is in the business of selling and leasing automobiles. The employer makes these automobiles available to its employees for their personal use throughout the year, including employees who are not involved principally in selling or leasing. Since the employees may have had several automobiles made available to them throughout the year, you inquired whether their standby charge could be calculated using the average cost of all automobiles held by the employer for sale or lease on one particular day in the year as opposed to using the average cost of all automobiles acquired by the employer throughout the year.

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 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 the employer is required to be included in calculating the employee's income under the Income Tax Act (the "Act"). 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 under subsection 6(2) of the Act. Under subsection 6(2) of the Act, a formula is used to take into account the employer's cost of each automobile (or the lease payments in the case of a leased automobile) and the total number of days throughout the year each automobile was made available to the employee.

Pursuant to subsection 6(2.1) of the Act, for employees otherwise subject to subsection 6(2) and who are "employed principally in selling or leasing automobiles", the employer has the option of calculating the standby charge using the greater of the average cost of all new automobiles acquired by the employer throughout the year for sale or lease, and the average cost of all automobiles acquired by the employer for sale or lease throughout the year. In calculating the standby charge using subsection 6(2.1) of the Act, the employer must use the average cost of all such automobiles that it owned throughout the year, not the average cost of automobiles that it owned on any given day throughout the year.

For more information, see our publication Employers' Guide: Taxable Benefits 2003-2004, which is available on our website at www.cra-arc.gc.ca. We trust our comments are of assistance.

Yours truly,

Randy Hewlett, B.Comm.

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