16 January 2006 Internal T.I. 2005-0156501I7 - Automobile Benefit and Beneficial Ownership

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: An automobile is leased in the name of a shareholder/employee and the lease describes the primary use of the automobile as "personal, family or household". Another automobile is purchased in the name of another shareholder/employee. The corporation pays all of the automobile expenses including the lease (or financing) charges and operating costs. The corporation claims beneficial ownership of the automobiles and deducts CCA on the automobiles based on our technical interpretation E2005-0122211E5. What is the impact on a taxable employment benefit under paragraph 6(1)(a) or a standby charge and operating cost benefit under paragraphs 6(1)(e) and (k), respectively?

Position: A standby charge and operating cost benefit do not apply. However, a taxable employment benefit will apply pursuant to paragraph 6(1)(a) for the expenses paid by the corporation that can reasonably relate to the personal use of the automobiles.

Reasons: The corporation does not own the automobiles.

 								January 16, 2006

Ms. Judith Foreman				HEADQUARTERS
	Examination and Taxable Benefits Section	Kathryn McCarthy, CA
	Trust Accounts Division

	Attention: J. Foreman
								2005-015650

Automobile Benefit and Beneficial Ownership

We are writing in response to your e-mail of September 29, 2005, concerning the above noted subject. We also acknowledge further information received from you and JoAnn Leblang (of the Windsor TSO) in subsequent telephone conversations and e-mails. This is also a follow-up to our technical interpretation E2005-0122211E5, CCA On A Vehicle In The Spouse's Name.

Situation 1:

You described an automobile that is leased in the name of a shareholder/employee for the purpose of obtaining a reduced lease rate which is only available to individuals. The lease agreement describes the primary use of the automobile as "personal, family or household".

Situation 2:

An automobile is purchased in the name of another shareholder/employee also for the purpose of obtaining a reduced purchase price that is only available to individuals. The individual may sell the automobile at any time and retain the proceeds of disposition.

In both situations, the corporation pays all of the automobile expenses including the lease (or financing) charges and operating costs. The automobiles are covered under the insurance policy of the corporation. No logbooks are kept, however, the corporation is claiming at least 90% business use of each automobile. The spouses of the individuals occasionally use the automobiles. There is no co-lease (or agreement) between either shareholder/employee and the corporation with respect to the corporation's leasing (or ownership) of the automobiles. The corporation claims beneficial ownership of the automobiles and deducts capital cost allowance (CCA) on the automobiles based on our technical interpretation E2005-0122211E5. You asked for our view on the impact of the calculation of either a taxable employment benefit pursuant to paragraph 6(1)(a) of the Income Tax Act (the Act) or a standby charge and operating cost benefit under paragraphs 6(1)(e) and (k), respectively, of the Act.

Our Comments

Situation 1:

At the outset, we note that a corporation is not entitled to claim CCA on a leased automobile and, therefore, technical interpretation E2005-0122211E5 has no bearing on the situation.

Situation 2:

The corporation does not have the beneficial ownership of the automobile because, among other factors, the shareholder may sell the automobile at any time and retain the proceeds of disposition. Therefore, the corporation may not claim CCA on the automobile.

Since the corporation is not the owner of the automobile, in either Situation 1 or 2, a standby charge and operating cost benefit do not apply. However, a taxable employment benefit will apply pursuant to paragraph 6(1)(a) of the Act for the expenses paid by the corporation that can reasonably relate to the personal use of the automobiles. Further, the corporation is entitled to a deduction in respect of the automobile expenses incurred including those which provide an employment benefit.

We trust our comments will be of assistance to you.

Kathryn McCarthy, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch

c.c. JoAnn Leblang, Windsor TSO