1 June 1989 Ministerial Letter 73728 F - Taxable Benefit Manual - Automobile Benefits

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.

Subject:  Taxable Benefits Manual - Automobile Benefits

We are responding to your round trip memorandum of March 9, 1989, concerning the technical accuracy of the above noted manual.  In order to facilitate the reference of our comments, we have numbered the pages of the material sent to us a 1-22.

1)     General: In many places, it is difficult to determine whether the comments relate to the standby charge or to the benefit relating to the operation of the automobile. For example, on page 4, paragraph 11, you state that lease costs exclude insurance costs paid within a lease will be different for the benefit determined under paragraph 6(1)(a) and 6(1)(e) of the Act.

2)     General: We suggest that the "definition" only be used where the source of the definition is indicated.  A definition in the Act may be different from a dictionary definition or the definition set out for the purposes of the manual. Where it is not stated, the reader would likely assume that the definition is found in the Act when, in fact, you may be referring to the interpretation given to the word by the Department.  For example, on page 3, paragraph 8, you state "The cost of a vehicle is defined as....".  This is not the definition of cost in the Act.  Subsection 248(1) of the Act defines the cost amount in terms of the U.C.C. of a prescribed class.

3)     Page 1, General Comments, Paragraph 2:  The reference to "grants an automobile to {a} shareholder" suggests that the corporation is transferring ownership of the vehicle rather than making the vehicle available for use.  We suggest the word "provides" rather than "grants".

4)     Page 2, Definition of Automobile, last part of the definition:

A)     We think you should adhere more closely to the wording in the Act and add the phrase "in the course of a business or for the purpose of earning income." (i.e. a motor vehicle which is used primarily for the transportation of personal use goods would not be excluded from the definition of automobile.)

B)     The word "called" appears to have been deleted after the word "commonly" (second exclusion).

5)     Page 2, Paragraph 4, First sentence:  while we would expect that a motor vehicle acquired for use as a taxi would likely, in fact, be used as a taxi, we note that your comment is more restrictive than that found in subsection 248(1) of the Act.

6)     Page 3, Paragraph 7, Last sentence: While possession of the keys may indicate control of the vehicle, we have taken a more restrictive position in our correspondence. Where an automobile is assigned to an employee, it is our view that the vehicle is available for his use until he is required to return the vehicle to his employer and the vehicle is available to the employer to be reassigned or otherwise used by the employer.  For example, the vehicle would still be available for the employee's use, if the keys are given to the employee's spouse or are returned to the employer without the return of the vehicle.

7)     Page 4, Paragraph 11, Leasing Cost:

A)     While we agree that insurance costs paid to the lessor are treated differently from other lease costs for the purpose of paragraphs 6(1)(a) and 6(1)(e) of the Act, it is our view that the amount paid to a lessor on account of insurance is properly termed a lease cost.  It is the formula determined under subsection 6(2) of the Act rather than the definition of the term "lease costs" which creates the difference in treatment.

B)     The reference to paragraphs 18-20 should be changed to paragraphs 21-23.

8)     Page 4, Paragraph 12, Third sentence:  While we have no objection to the administrative practice of prorating initial balloon payments over the term of the lease for the purpose of calculating the standby charge, there is no specific requirement to do so in the Act Furthermore, it should by noted that for the purpose of section 67.3 of the Act and the deductibility of the lease payments by the employer, it is our view that initial balloon payments can not be prorated over the term of the lease.

9)     Page 4, Paragraph 13, Motor Vehicles:  The inclusion of "248(1) primarily" appears to be a typographical error.

10)     Page 4, Paragraph 14, Operating Costs:

A)     Second sentence.  It is incorrect, in our view to state without qualification that lease costs are not operating costs.  We suggest that you add the phrase "For the purpose of calculating the benefit under paragraph 6(1)(a) of the Act...".  We also suggest that you replace the phrase "Leased cars" with "employer-leased cars" to provide further clarification.

B)     Third sentence: It is not clear which type of costs may be paid by the employee (operating costs or capital costs).  We suggest that the phrase "such costs" be replaced with "operating costs".

C)     Third sentence:  The next sentence has not been capitalized. ("They").

D)     Fourth sentence:  It is incorrect to suggest that an employee must include in income amounts paid by him to his employer.  This paragraph should be reworded to indicate that such costs are used in the calculation of the benefit rather than included in the employee's income.  We suggest, "Even though an amount is paid in whole or in part by an employee, the entire expense is included in the calculation of total operating costs of the vehicle.  The net benefit to be included in the employee's income for the personal use of the vehicle is then reduced by any amounts so paid by the employee".

E)     Second last sentence:  A typographical error has deleted the name of the expense which is not considered an operating cost for the purpose of determining the benefit. (parking?)

11)     Page 5, Paragraph 19, Reimbursement:  In our opinion, the word "reimbursement" should not be used in this context and suggest the word "repayment".  In our view, a per kilometre charge and a flat rate amount are not reimbursements for the purpose of paragraph 6(1)(b)(xi) of the Act.  We have a legal opinion which states that a flat rate charge is not a "reimbursement".  Our position of treating a per kilometre charge as a reimbursement as stated in paragraph 38 of IT 272R has also changed as a reimbursement.

12)     Page 6, Paragraph 23, Second sentence:  The employee is only required to apply to the Department if he wishes to prorate the terminal charge over the term of the lease.  If the employee does nothing, the standby charge for the final year will be based on the net lease costs paid.

13)     Page 6, Paragraph 24, Benefit Calculation:  The paragraph references for allowances should be changed to 44-56 and 55 respectively.

14)     Page 6, Paragraph 25, Last sentence:  Your description of the calculation of the two benefits is technically incorrect.  The amount paid to the employer by the employee will reduce either the standby charge for the operating benefit (depending on the nature of the payment) but not both.  This position is supported by the difference in the wording between paragraphs 6(1)(e) and 6(2.2) of the Act as they relate to amounts paid by an employee to an employer. If the amount is an expense relating to the operation of the vehicle, it reduces the benefit calculated under paragraph 6(2.2) of the Act (as well as the benefit under paragraph 6(1)(a) of the Act) If, however, the amount relates to the use of the vehicle ie. it is not specifically related to the operation of the vehicle), it reduces the benefit under paragraph 6(1)(e) of the Act.  It is, therefore, necessary to determine whether or not the amount in question is in relation to the operation of the automobile before calculating the benefits under paragraphs 6(1)(a) and 6(1)(e) of the Act.  Refer to comment 19 below.

15)     Page 7, Paragraph 28, Standby Charge:  From the present wording, it could be inferred that the option to use the reduced rate is not dependent on the method used to determine the employer's cost of the automobile.  We suggest that the final two lines be replaced with "in which case, the standby rate is reduced to 1.5% per 30 day period".

16)     Page 9, Paragraph 32, Standby Charge:

A)     In the preamble to the explanation of the elements of the formula, we suggest that you replace the words "the use" with "the distance travelled" to be consistent with paragraph 6(2)(d) of the Act.

B)     "A":  Considering your interpretation of the word "period" in paragraph 44, we think you should refer to the total available days in the taxation year in which the automobile was available for us rather than "in the period".

C)     "C", Clause (ii):  A typographical error was noted: "employer" should be "employed".

D)     "C", Clause (ii):  We suggest you add the phrase "to the employer" after "cost" in (a).

E)     "E":The explanation in parenthesis is incorrect in that it does not account for terminal charges or credits. The explanation is quite clear without the phrase in parenthesis as it is not difficult to determine the total lease payment payable by the employer for the period in which the car is made available to the employee.

F)     "F": Insurance costs only effect the calculation of the standby charge if they are paid to the lessor in respect of costs incurred by the lessor (i.e. insurance premiums which are paid separate and apart from the lease would not affect the standby charge).

17)     Page 10, Calculation of Standby Charge:  In each of the examples on pages 10-18, your numerical calculation of (E- F) includes the fraction 365/30.  As neither E nor F is based on the number of 30 day periods during which the automobile is available for use, this fraction should be deleted.  In examples II a and II b, "E" is $5100 and "F" is $900.

18)     Page 17, Example III c:  In the given facts, it would appear that the total cost of used cats acquired in the year ($1,335,040) should be the same as the total cost of all cars ($1,350,000) because the employer did not acquire any new cars.

19)     Page 18, Subsection 6(2.2) Operating Cost Option:  As explained in comment 14, the amount paid to the employer will either reduce the standby charge or the operating costs benefit.  If the amount paid to the employer is or the repayment of an expense relating to the operation of the automobile, the standby charge would be $270 and the operating benefit calculated under subsection 6(2.2) would be (1/2 * 270) - 200=0 for a total taxable benefit of $270.  If the amount is not an expense related to the operation of the automobile, the standby charge would be $270 - 200 = $70 and the operational benefit calculated under subsection 6(2.2) would be 1/2 * 270 - 0 = $130 for a total taxable benefit of $200.

20)     Page 20, Paragraph 44, "Period":  We think that the word "discrete" should be replaced with the word "finite".

21)     Page 20, Paragraph 45:  As explained in comment 11 above, an allowance does not include a reimbursement.

22)     Page 20, Paragraph 46:

A)     Second sentence:  We suggest that the phrase "service men" be replaced with "service personnel".

B)     A typographical error was noted in this sentence as the word "sales" has been duplicated.

23)     Page 21, Paragraph 50 & 51:

A)     As subparagraphs 6(1)(b)(x) and (xi) apply to subparagraphs 6(1)(b)(v), (vi) and (vii.1) and not to subparagraph 6(1)(b)(vii) of the Act, we think you should amend the references accordingly. In addition, it should be noted that subparagraphs 6(1)(b)(x) and (xi) of the Act do not define what is not reasonable but rather deem the amounts so described in those subparagraphs to be "in excess of a reasonable amount".  We also think that the reference to "reasonable" in the first condition listed in paragraph 51 should be "not in excess of a reasonable amount".

B)     In paragraph 50, it should be noted that the draft regulations permit an additional deduction of $.04 per kilometre for travel in the Yukon and the North West Territories.

We trust our comments will be of assistance to you.  If you wish to discuss our comments please contact Annemarie Humenuk at the number listed above.

B.W. Dath, DirectorSmall Business and General DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch