28 April 1993 External T.I. 9311795 F - Automobile Benefits From Employment

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.

Mr. Don Moore Material Management and Administrative Services Division Canadian Parks Service  Environment CanadaTerrasse de la Chaudière 10 Wellington Street Hull, Quèbec K1A 0H3

Dear Don:

RE:  Taxation of Automobile Benefits

This is in reply to your facsimile request dated April 23, 1993 for the excerpts of text of the Income Tax Act that deal with automobile benefits.

The treatment of automobile benefits is contained in paragraphs 6(1)(a) which requires the inclusion of all employment benefits other than those specifically referred to as exceptions, and 6(1)(e) which requires the inclusion of a reasonable standby charge, subsections 6(2) which sets out the formula for the computation of the standby charge, 6(2.2) which provides an optional calculation of the operating cost benefit under certain conditions, and 248(1) which provides the specific definition of the term "automobile". Following are the provisions of the Income Tax Act in question:

Sec. 6(1)(a)

(a)     Value of benefits. the value of board, lodging and other benefits of any kind whatever received or enjoyed by him in the year in respect of, in the course of, or by virtue of an office or employment, except any benefit

(i)     derived from his employer's contributions to or under a registered pension plan, group sickness or accident insurance plan, private health services plan, supplementary unemployment benefit plan, deferred profit sharing plan or group term life insurance policy,

(ii)     under a retirement compensation arrangement, an employee benefit plan or an employee trust,

(iii)     that was a benefit in relation to the use of an automobile, except to the extent that it related to the operation of the automobile,

(iv)     derived from counselling services in respect of

(A)      the mental or physical health of the taxpayer or an individual related to the taxpayer, other than a benefit attributable to an outlay or expense to which paragraph 18(1)(l) applies, or

(B)      the re-employment or retirement of the taxpayer; or

(v)     under a salary deferral arrangement, except to the extent that the benefit is included under this paragraph by reason of subsection (11);

Sec. 6(1)(e)

(e)     Standby charge for automobile. where his employer or a person related to his employer made an automobile available to him, or to a person related to him, in the year, the amount, if any, by which

(i)     an amount that is a reasonable standby charge for the automobile for the aggregate number of days in the year during which it was made so available

exceeds

(ii)     the aggregate of all amounts, each of which is an amount (other than an expense related to the operation of the automobile) paid in the year to the employer or the person related to the employer by the taxpayer or the person related to the taxpayer for the use of the automobile;

Sec. 6(2)

(2)     Reasonable standby charge. For the purposes of paragraph (1)(e), a reasonable standby charge for an automobile for the aggregate number of days (in this subsection referred to as the "total available days") in a taxation year during which the automobile is made available to a taxpayer or to a person related to the taxpayer by the employer of the taxpayer or by a person related to the employer (both of whom are in this subsection referred to as the "employer") shall be deemed to be the amount determined by the formula

A 2 - x (2% x (C x D) + - x (E - F)) B 3

where

A is the lesser of

(a)     the aggregate number of kilometres that the automobile is driven (otherwise than in connection with or in the course of the taxpayer's office or employment) during the total available days, and

(b)     the value determined for B for the year under this subsection in respect of the standby charge for the automobile during the total available days,

except that the amount determined under paragraph (a) shall be deemed to be equal to the amount determined under paragraph (b) unless

(c)     the taxpayer is required by the employer to use the automobile in connection with or in the course of the office or employment, and

(d)     all or substantially all of the distance travelled by the automobile in the total available days is in connection with or in the course of the office or employment;

B is the product obtained when 1,000 is multiplied by the quotient obtained by dividing the total available days by 30 and, if the quotient so obtained is not a whole number and exceeds one, by rounding it to the nearest whole number or, where that quotient is equidistant from two consecutive whole numbers, by rounding it to the lower thereof;

C is the cost of the automobile to the employer where the employer owns the vehicle at any time in the year;

D is the number obtained by dividing such of the total available days as are days when the employer owns the automobile by 30 and, if the quotient so obtained is not a whole number and exceeds one, by rounding it to the nearest whole number or, where that quotient is equidistant from two consecutive whole numbers, by rounding it to the lower thereof;

E is the aggregate 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 during such of the total available days as are days when the automobile is leased to the employer; and

F is the part of the amount determined for E that may reasonably be regarded as having been payable to the lessor in respect of all or part of the cost to the lessor of insuring against

(a)     loss of, or damage to, the automobile, or

(b)     liability resulting from the use or operation of the automobile.

Sec. 6(2.2)

(2).2)      Benefit re auto operation. Where

(a)     an amount is determined under subparagraph (1)(e)(i) for an automobile in computing the income of a taxpayer for a taxation year,

(b)     the automobile is used primarily in the performance of the duties of the taxpayer's office or employment, and

(c)     the taxpayer notifies his employer in writing before the end of the year that the amount of the benefit relating to the operation of the automobile for the period in the year during which it was made available is to be determined under this subsection,

the amount of the benefit relating to the operation of the automobile shall, for the purposes of paragraph (1)(a), be deemed to be the amount, if any, by which

(d)     one half of the amount determined for the automobile under subparagraph (1)(e)(i) in respect of the taxpayer for the year

exceeds

(e)     the aggregate of all amounts related to the operation of the automobile paid in the year, by the taxpayer or by a person related to the taxpayer, to the employer or to the person who made the automobile available.

248(1)

"automobile" means

(a)     a motor vehicle that is designed or adapted primarily to carry individuals on highways and streets and that has a seating capacity for not more than the driver and 8 passengers,

but does not include

(b)     an ambulance,

(c)     a motor vehicle acquired primarily for use as a taxi, a bus used in a business of transporting passengers or a hearse used in the course of a business of arranging or managing funerals,

(d)     except for the purposes of section 6, a motor vehicle acquired to be sold, rented or leased in the course of carrying on a business of selling, renting or leasing motor vehicles or a motor vehicle used for the purpose of transporting passengers in the course of carrying on a business of arranging or managing funerals, and

(e)     a motor vehicle of a type commonly called a van or pick-up truck or a similar vehicle

(i)     that has a seating capacity for not more than the driver and 2 passengers and that, in the taxation year in which it is acquired, is used primarily for the transportation of goods or equipment in the course of gaining or producing income, or

(ii)     the use of which, in the taxation year in which it is acquired, is all or substantially all for the transportation of goods, equipment or passengers in the course of gaining or producing income;

In addition to the above we are forwarding excerpts from a Press Release 93-020 issued by the Department of Finance on March 30, 1993 which announces proposed amendments to the Income Tax Act effectively simplifying the computation of the operating cost benefit to 12 cents/ kilometre. We trust that the foregoing information will be of assistance to you.

Yours truly,

P.D. Fuoco for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch