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.
XXXXXXXXXX
Attention: XXXXXXXXXX
Dear Sirs:
RE: Benefits - Automobile Standby Charges
This is in reply to your letter of November 30, 1993 in which you requested our views on the determination of an employee benefit in respect of the automobile standby charge rules in the Income Tax Act (the Act).
The situation with which you are concerned appears to relate to specific taxpayer and involves proposed transactions. Confirmation of the tax consequences of such transactions will only be provided in response to a request for an advance income tax ruling. The procedures for requesting an advance income tax ruling are set out in Information Circular 70-6R2 and the related Special Release dated September 30, 1992. We are, however, providing you with the following general comments.
Our Comments:
You are concerned with the type of situation where an automobile (as defined in subsection 248(1) of the Act) had been made available by an employer corporation (the Corporation) to an employee. The automobile continues to be made available to the employee following the sale of that vehicle to a non-arm's length related corporation (the Related Corporation) for proceeds equal to its fair market value at the time of the sale.
In our comments below, we have presumed that the original cost of the automobile is higher than the purchase price paid by the Related Corporation. In addition, as a consequence of subsection 6(7) of the Act and paragraph 6(1)(e.1) of the Act, our references to the cost of the automobile for the purposes of subsection 6(2) of the Act exclude the goods and services tax.
With respect to the situation set out above, the Related Corporation is regarded as being an employer for the purposes of subsection 6(2) of the Act by virtue of the preamble in that provision. In relation to the ownership of the automobile by the Related Corporation, the concern is whether the standby charge for the purposes of subsection 6(2) of the Act should be computed on the basis of the cost of the automobile to the Related Corporation or by reference to the cost of the automobile to the Corporation.
Subsection 6(2) of the Act in respect of the formula set out therein states that "C" is "the cost of the automobile to the employer where the employer owns the vehicle at any time in the year". Pursuant to comments in paragraph 11 of Interpretation Bulletin IT-63R3 "Benefits Including Standby Charge for an Automobile ... Supplied by an Employer", we agree that "C" in the formula set out in subsection 6(2) of the Act refers to the actual cost of the automobile to the Related Corporation. However, notwithstanding this point, it is our view that section 245 would be considered for the purposes of determining whether the amount of the standby charge should be computed on the basis of the cost of the automobile to the Corporation. Consistent with these comments, it is our view that the fact that the automobile was sold to the Related Corporation for proceeds equal to the fair market value of the automobile at the time of the disposition, does not establish one way or the other whether there has been a "misuse" or an "abuse" for the purposes of subsection 245(4) of the Act. In addition, if the assumption is made that the employee is in a position to authorize the disposition of the automobile from the Corporation to the Related Corporation (e.g., the employee may be able to authorize the disposition by virtue of his or her shareholdings), it is our view that this fact is an indication that section 245 may be applicable. As a further comment, the transfer of the automobile to the Related Corporation, in and by itself, suggests to us that section 245 might be applicable. Since the ultimate determination of this issue involves a question of fact, it is not possible to provide further comments which would be meaningful.
We note that we agree that the rules in paragraphs 13(7)(e), (f), and (g) of the Act are not applicable for the purposes of determining the cost of the automobile to the Related Corporation in respect of subsection 6(2) of the Act.
There may also be another tax consequence which concerns paragraph 1102(1)(c) of the Income Tax Regulations. Pursuant to this Regulation, capital cost allowance cannot be claimed on an asset that was not acquired for the purpose of gaining or producing income. In circumstances where the Related Corporation is merely providing the automobile to the Corporation's employee, it is our view that this test has not been satisfied.
We trust that our comments will be of assistance to you.
Yours truly,
P.D. Fuoco for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
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