29 April 2004 External T.I. 2004-0071441E5 - Terminal Charge - Leased Automobile

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.

2004-007144
April 29, 2004

Dear XXXXXXXXXX:

Re: Taxable Benefit - Terminal Charge On A Leased Automobile

We are writing in response to your letter of April 14, 2004, regarding the above noted issue.

In your letter, you indicated that the employer incurred a terminal charge on the return of a leased automobile to the leasing company. The automobile was made available to an employee for personal use. You inquired whether this amount is included in the employer's total lease payments when calculating the employee's "standby charge".

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 his or her 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 using a formula that takes into account the "total of all amounts that may reasonably be regarded as having been payable by the employer to a lessor for the purpose of leasing the automobile". When calculating the standby charge on a leased automobile, a terminal charge at the end of a lease is included in 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 the relevant 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. 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