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: (a) The taxable status of a $XXXXXXXXXX terminal loss incurred by an employer in respect of a leased automobile at the end of the lease - should the entire amount of the terminal loss be included in the employee's income as a taxable benefit? (b) Should an individual be entitled to a deduction for the entire "personal amount" under the Ontario Tax Reduction Program?
Position: (a) The whole amount will not be entirely reflected in the amount of the automobile benefit that is included in the employee's income for the year. (b) The OTR is not a rebate program nor does it provide for a deduction in computing Ontario taxable income.
Reasons: (a) When calculating the standby charge on a leased automobile, the amount of the terminal charge incurred at the end of a lease is included in the employer's cost of leasing the automobile for that year. The maximum amount that could possibly included in the employee's income for the year on the basis of the formula in subsection 6(2) of the Act, is two-thirds (2/3) of the terminal charge. This amount could be further reduced if the employee is required by the employer to use the automobile in connection with or in the course of the office or employment and the distance travelled is primarily in connection with or in the course of that office or employment. (b) The OTR will provide an individual with Ontario tax relief in one of two ways: (1) it will eliminate Ontario tax payable for an individual who in the taxation year has Ontario tax otherwise payable that is less than the individual's "personal amount", as calculated under the Ontario Act, or (2) it will reduce an individual's Ontario tax payable if it is in excess of the individual's personal amount, by reducing it by the amount, if any, by which twice the individual's personal amount exceeds the Ontario tax otherwise payable.
Randy Hewlett
XXXXXXXXXX 613-957-2049
2005-014323
November 21, 2005
Dear XXXXXXXXXX:
Re: Automobile Benefit / Ontario Tax Reduction
We are writing in response to your letter of April 30, 2005, which was sent to the CRA's Summerside Taxation Center. Your letter was forwarded to us for reply. We apologize for any delay in responding to your inquiry.
You inquired about two issues pertaining to your 2004 taxation year. The first issue concerned the taxable status of a $XXXXXXXXXX loss (a "terminal loss") incurred by your employer in respect of a leased automobile at the end of the lease. You indicated that the entire amount of the terminal loss was included in your income as a taxable benefit. The second issue concerned why you were not entitled to a deduction for the entire "personal amount" under the Ontario Tax Reduction Program (the "OTR"). You indicated that you earn a salary of $XXXXXXXXXX, your spouse does not work and you have five dependants.
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.
(a) Automobile Benefit - Terminal Charge On A Leased Automobile
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, the amount of the terminal charge incurred at the end of a lease is included in the employer's cost of leasing the automobile for that year. This whole amount, however, will not be entirely reflected in the amount of the automobile benefit that is included in the employee's income for the year. The maximum amount that could possibly included in the employee's income for the year on the basis of the formula in subsection 6(2) of the Act, is two-thirds (2/3) of the terminal charge. This amount could be further reduced if the employee is required by the employer to use the automobile in connection with or in the course of the office or employment and the distance travelled is primarily in connection with or in the course of that office or employment.
It should also be noted that 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. For this alternative method to apply, 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 2004-2005, which is available on our website at www.cra-arc.gc.ca.
(b) Ontario Tax Reduction
The OTR is provided for under section 7 of the Ontario Income Tax Act (the "Ontario Act"). The OTR eliminates or reduces Ontario income tax for individuals with low income and/or dependant children 18 years of age or under or disabled or infirm dependants of any age. The OTR is not a rebate program nor does it provide for a deduction in computing Ontario taxable income.
The OTR will provide an individual with Ontario tax relief in one of two ways:
1. It will eliminate Ontario tax payable for an individual who in the taxation year has Ontario tax otherwise payable that is less than the individual's "personal amount", as calculated under the Ontario Act, or
2. It will reduce an individual's Ontario tax payable if it is in excess of the individual's personal amount, by reducing it by the amount, if any, by which twice the individual's personal amount exceeds the Ontario tax otherwise payable.
As an example, in 2004 the personal amount of an individual with 5 eligible dependants would be $1,901. Unless that individual's Ontario tax payable is less than $1,901, the Ontario tax payable will not be eliminated. Further, there will be no reduction unless the Ontario tax payable exceeds $3, 802 (twice the individual's personal amount, i.e., 2 X $1,901). For further information on the OTR please contact the Ontario Ministry of Finance at www.rev.gov.on.ca, or in writing at:
Ministry of Finance
Income Tax Related Programs Branch
P.O. Box 624, 33 King Street West
Oshawa On L1H 8H8
We trust our comments will be of assistance to you. Should you have any further questions please feel free to contact the undersigned at the telephone number indicated above.
Yours truly,
Randy Hewlett
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch
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