26 April 2005 External T.I. 2005-0117581E5 - Employee Benefits-MV's That Are Not Autos

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: How to calculate employee benefits for the personal use of an employer-provided motor vehicle that is not an "automobile" as defined in subsection 248(1) of the Act. In the situation described the employees are linesmen who work for a power distribution company. The linesmen are required by their employer to be on call 8 to 10 weeks of every year. While on call a linesman must take the employer's "bucket truck" home so that he can quickly respond to emergencies by travelling directly from his home to the point of call. A linesman is not permitted to use the bucket truck for any other personal purpose.

Position: Although the per-kilometre rate in section 7306 of the Regulations is generally accepted, the rate in section 7305.1 is more appropriate in this case.

Reasons: The rate in section 7305.1 of the Regulations reflects the economic benefit enjoyed by the employee for the personal use of the employer's motor vehicle. This rate does not reflect a capital cost component of owning an automobile and generally reflects the value of automobile operating expenses. Therefore, the rate is more in line with the incremental savings to an employee from not having to use his or her own motor vehicle on the days that the employer requires the employee to use its motor vehicle.

Randy Hewlett
XXXXXXXXXX 613-941-7239
2005-011758
April 26, 2005

Dear XXXXXXXXXX:

Re: Employee Benefits - Motor Vehicles That Are Not Automobiles

We are writing in response to your letter of February 16, 2005, wherein you asked for our opinion on the calculation of employee benefits for the personal use of an employer-provided motor vehicle that is not an "automobile" as defined in subsection 248(1) of the Income Tax Act (the "Act").

In the situation described in your letter, the employees are linesmen who work for a power distribution company. The linesmen are required by their employer to be on call 8 to 10 weeks of every year. While on call a linesman must take the employer's "bucket truck" home so that he can quickly respond to emergencies by travelling directly from his home to the point of call. A linesman is not permitted to use the bucket truck for any other personal purpose.

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 are prepared to offer the following comments.

When an employer makes a motor vehicle available for an employee's personal use, it generally gives rise to a taxable benefit that must be included in the employee's income. In this regard, use of an employer-provided motor vehicle by an employee to travel between his or her home and regular place of employment is considered personal. This is so notwithstanding the fact that the vehicle may be required because an employee is on call for emergency purposes. However, where the employee proceeds directly from home to a point of call other than the employer's place of business to which the employee regularly reports or returns home from such a point, use of the vehicle is considered employment-related. The CRA's general position on what constitutes personal use of an employer-provided motor vehicle is discussed 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.

It is important to note that an employee may be in receipt of a taxable benefit for the personal use of an employer-provided motor vehicle even when the vehicle is not considered to be an automobile as defined in section 248(1) of the Act. The classification of a motor vehicle as an automobile in this respect will only impact the provision of the Act that calculates the taxable benefit. The taxable benefit for the personal use of a motor vehicle that is not an automobile is included in the employee's income under paragraph 6(1)(a) of the Act. The amount of the benefit is based on a reasonable calculation of the value of the benefit derived by the employee, which can vary in differing circumstances depending upon such factors as personal use.

As noted in paragraph 23 of IT-63R5, where a motor vehicle that is not an automobile is essential to the employer's business operation, and its only personal use is to provide transportation between an employee's residence and the employer's business premises, it may be appropriate to calculate the benefit to the employee on a cents-per-kilometre basis for equivalent automobile transportation. The CRA generally accepts the rates prescribed in section 7306 of the Income Tax Regulations (the "Regulations") for this purpose. This rate reflects the key cost components of owning and operating an automobile, such as depreciation, financing, insurance, maintenance and fuel costs, and is a reasonable indicator of the benefit enjoyed by an employee for the personal use of an employer-provided motor vehicle that is not an automobile. For 2005, in most areas of Canada the rate is 45 cents per-kilometre for the first 5,000 kilometres driven and 39 cents for each additional kilometre.

There may be situations where the rate prescribed in section 7306 of the Regulations does not reflect the economic benefit enjoyed by the employee for the personal use of the employer's motor vehicle and therefore, a benefit that is calculated using a lower rate is more appropriate. This may be the case where, for example, the employee only uses the employer's motor vehicle occasionally to travel to and from work as required by the employer and has his or her own motor vehicle that is used for all other personal travel, including travelling to and from work at times when he or she is not required by the employer to use its motor vehicle. In such a case, the economic benefit to the employee may be more appropriately calculated by using a cents-per-kilometre rate that reflects the incremental savings to an employee from not having to use his or her own motor vehicle on the days that the employer requires the employee to use its motor vehicle. For this purpose, the CRA will accept a benefit that is calculated using the rate prescribed in section 7305.1 of the Regulations. In our view, this rate is more appropriate since it does not reflect the capital cost component of owning an automobile and generally reflects the value of automobile operating expenses. For 2005, the rate is 20 cents per-kilometre.

In view of the above, we are of the opinion that in the situation described in your letter the rate in section 7305.1 of the Regulations may be used to calculate the benefit for the 8 to 10 weeks of the year that a linesman is on call for emergencies and required to take a bucket truck home. You should also take note that when calculating the benefit, use of the bucket truck is not considered personal where the linesman proceeds directly from home to the emergency or returns home from that point of call. Therefore, it may be the case that on a particular day there is an emergency a linesman may not have any personal use of the motor vehicle.

We trust our comments will be of assistance to you.

Yours truly,

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch