1 December 2005 External T.I. 2005-0151141E5 - Taxable Benefit - Motor Vehicle Not Auto Provided

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 linesman is on standby for two to six weeks a year and is required by the employer to take a company pick-up truck home. The linesman is not permitted to use the pick-up truck for any other personal purpose. The linesman must be available to respond to emergencies quickly by travelling directly from his home to the point of call with the company pick-up truck. How to calculate the employment benefit for the personal use of the pick-up trucks that are not "automobiles" as defined in subsection 248(1).

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 linesman for the personal use of the employer's pick-up truck. While this rate does not reflect the capital cost of owning an automobile, it generally does reflect the operating cost. The rate, therefore, better reflects the incremental savings to the linesman of not having to use his personal motor vehicle on the days that the employer requires the linesman to use the company pick-up truck.

XXXXXXXXXX 2005-015114
Kathryn McCarthy, CA
December 1, 2005

Dear XXXXXXXXXX:

Re: Taxable Benefit - Employer Provided Motor Vehicle (Not Automobile)

This is in reply to your letter dated September 14, 2005 and our telephone conversations on November 18 and November 30, 2005, concerning the above noted subject matter.

You described a situation where a linesman is on standby for two to six weeks a year and is required by the employer to take a company pick-up truck home. The linesman is not permitted to use the pick-up truck for any other personal purpose. The linesman must be available to respond to emergencies quickly by travelling directly from his home to the point of call with the company pick-up truck. The pick-up truck has a seating capacity for more than the driver and two passengers and, in the taxation year the truck was acquired, it was used all or substantially all for the transportation of a radio, tools, and equipment in the course of gaining or producing income. You asked for our opinion on the calculation of the employment benefit for the personal use of the pick-up trucks that are not, on the basis of the information described above, "automobiles" as defined in subsection 248(1) of 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 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. We are, however, 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 employment benefit. The 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 notwithstanding that the vehicle may be required because the 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, the use of the vehicle is considered employment-related. The Canada Revenue Agency's (CRA) general position on what is the 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, which is available at http://www.cra-arc.gc.ca/E/pub/tp/it63r5/README.html.

An employee may benefit from the personal use of an employer-provided motor vehicle which is not an "automobile" as defined in subsection 248(1) of the Act. The taxable benefit for such use 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 from the 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 cost of owning and operating an automobile and is a reasonable approximation 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 also 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 lower rate is more appropriate. For example, where 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 for all other personal travel, including travelling to and from work at times when the use of the employer's motor vehicle is not required. 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 the employee of not having to use his or her own 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. This rate is likely more appropriate since it does not reflect the capital cost of owning an automobile but generally does reflect the operating cost. For 2005, the rate is 20 cents per-kilometre.

In our opinion, therefore, the rate in section 7305.1 of the Regulations may be used to calculate the benefit for the two to six weeks of the year that the linesman described in your letter is on call for emergencies and required to take a company pick-up truck home. We would also like to note that when calculating the benefit, the use of the pick-up truck is not considered personal if the linesman proceeds directly from home to the emergency or returns home from that point of call. Therefore, on the day of an emergency, the linesman may have no personal use of the company pick-up truck.

We trust these comments are helpful.

Yours truly,

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