4 February 2010 External T.I. 2010-0353961E5 - Employer-Provided Vehicle

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: Will a taxable benefit arise in respect of the provision of an employer owned or leased vehicle to an employee who is "on-call" and is required to take the vehicle home at the request of the employer in order to attend emergencies outside regular business hours?

Position: Yes, a taxable benefit will arise with respect to the personal use of the motor vehicle such as driving from work to home and back. However, where certain conditions are met, the benefit may be calculated at a reduced rate pursuant to the new CRA administrative position outlined in ITTN No. 40.

Reasons: Where the motor vehicle is an "automobile" as defined in subsection 248(1) of the Income Tax Act (the "Act"), a standby charge and operating benefit will arise under paragraphs 6(1)(e) and 6(1)(k) of the Act respectively with respect to the personal use. Where the motor vehicle is not an "automobile", a taxable benefit will arise under paragraph 6(1)(a) of the Act with respect to any personal use. In this case, the CRA generally accepts the rate prescribed under section 7306 of the Regulations for determining the employment benefit the personal use unless certain conditions are met, wherein the CRA will generally accept the rates prescribed in section 7305.1 of the Regulations in determining a reasonable motor vehicle benefit with respect to the personal use.

								2010-035396
XXXXXXXXXX 							Renee Sigouin
(613) 957-2128
February 4, 2010

Dear XXXXXXXXXX :

Re: Employer-Provided Vehicles

This is in response to your letter of January 7, 2010 concerning whether the provision of employer-owned or leased motor vehicles to employees in the situation described will give rise to a taxable employment benefit.

You have indicated that the XXXXXXXXXX (the "Employer") provides vehicles to various employees, some of whom are designated as "on-call". Employees who are "on-call" are required to take the employer-provided vehicles home each day in the event that they are required to respond to a non-fire or police related emergency outside of regular business hours for the Employer. You have not advised whether the employees are permitted to use the vehicles for personal travel other than from home to work and back or whether the vehicles are considered to be "automobiles" for income tax purposes.

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 a request for an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, "Advanced Income Tax Rulings", dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the internet at http://www.cra-arc.gc.ca. Where the particular transactions are complete, the inquiry should be addressed to the relevant tax services office, a list of which is available on the "Contact Us" page of the CRA website. Although we cannot comment on your specific situation, we are prepared to provide the following comments in respect of the issues that you raised. Please note, however, that these comments are of a general nature only and are not binding on the CRA.

When an employer makes a motor vehicle available to an employee for his or her 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 a 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.

Based on the information that you have provided, it is not clear what type(s) of motor vehicles are provided to the "on-call" employees. Whether a particular motor vehicle owned or leased by an employer is considered to be an automobile, as defined in subsection 248(1) of the Income Tax Act (the "Act"), is a question of fact, and is important in determining the appropriate method of calculating the employment benefit arising with respect to the personal use of the motor vehicle by the employee. Information regarding the definition of an automobile under the Act and the calculation of employment benefits arising from the provision of employer-owned or leased vehicles to employees is available in CRA Guide T4130: "Employers' Guide Taxable Benefits" ("T4130"), which may be found on our website at http://www.cra-arc.gc.ca/E/pub/tg/t4130/t4130-09e.pdf.

The taxable benefit arising on the personal use and availability of a motor vehicle that is considered an "automobile", as defined in subsection 248(1) of the Act, is included in the employee's income under paragraph 6(1)(e) of the Act as a "standby charge". Where the employer pays any of the operating costs of the automobile, an "operating cost benefit" is also included in the employee's income under paragraph 6(1)(k) of the Act. The calculation of the operating benefit is explained on page 9 of T4130 and under the fixed rate calculation is computed at 24¢ per kilometre of personal use for 2009 (including GST/HST and PST).

If the vehicle you provide to your employee is not included in the definition of an "automobile", there is no standby charge or operating expense benefit for the availability of the motor vehicle. However, a taxable benefit will still apply for any personal use of the motor vehicle under paragraph 6(1)(a) of the Act. The amount of the benefit is based on a reasonable estimate of the fair market value of the benefit, including GST/HST, derived by the employee from the personal use.

In Income Tax Technical News No. 40, the CRA recently announced a change to the administrative policy regarding the determination of a reasonable motor vehicle benefit under paragraph 6(1)(a) of the Act where certain conditions are satisfied. The new policy is also described on page 29 of T4130 wherein it states that the CRA will generally accept the operating benefit rate as prescribed in section 7305.1 of the Income Tax Regulations (i.e., 24 cents per kilometre for the 2009 taxation year) to represent a reasonable benefit for the personal use of the vehicle, where the following four conditions are met:

a) The motor vehicle is not an automobile;

b) You tell the employee in writing that he or she cannot make any personal use of the vehicle, other than travelling between work and home. Your employee will have to maintain full logbooks of the vehicle's use as proof that there was no other personal use;

c) You have valid business reasons for making the employee take the vehicle home at night, such as:

i) it would be unsafe to leave tools and equipment at your premises or on a worksite overnight; or

ii) the employee is on-call to respond to emergencies (i.e., relating to the health and safety of the general population or to a significant disruption to the employer's operations), and you provide the vehicle so the employee can respond more effectively to emergencies.

d) The motor vehicle is specifically designed or suited for your business or trade and is essential for the performance of your employee's duties. Just transporting the employee to the work location does not meet the condition of "essential in the performance of employment duties." The following examples meet both conditions (see T4130 for more examples):

i) The vehicle is designed, or significantly modified, to carry tools, equipment, or merchandise. Your employee has to have the vehicle to do his or her job.

ii) The vehicle, such as a pick-up truck or a van, is suitable for and is consistently used to carry and store heavy, bulky, or numerous tools and equipment. It would be difficult to load and unload the contents. The vehicle is essential to your employee in performing his or her job.

iii) Your employee is on call for emergencies (such as those described above), and has to use a vehicle which:

• is a clearly marked emergency-response vehicle;
• is specially equipped to respond rapidly; or
• is designed for the purpose of carrying specialized equipment to the scene of an emergency.

Where any of the four abovementioned conditions are not met, the CRA generally accepts that the employment benefit arising from the personal use of the motor vehicle that is not an automobile, will be considered reasonable if it is calculated based on the rates prescribed in section 7306 of the Income Tax Regulations. In most areas of Canada, that rate for 2009 is 52 cents per kilometre for the first 5,000 kilometres driven and 46 cents for each additional kilometre.

We trust that these comments have been of assistance.

Yours truly,

Renée Shields
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch