18 June 1998 External T.I. 9813005 - STANDBY CHARGE -SHARED LEASE

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: whether lease costs paid by employee to lessor reduce the standby charge

Position: no but the employee is likely entitled to a deduction under 8(1)(h.1) for the employment related share of the lease costs that the employee was required to pay

Reasons: 6(1)(e) reduction in standby charge is only for amts paid to employer or person related to employer

		June 18, 1998

Edmonton Tax Services Office HEADQUARTERS
Client Services A. Humenuk
Attention: Carol Sayre
981300

Automobile Standby Charge

This is in response to your memorandum of May 15, 1998, concerning the calculation of the standby charge when an employee pays a share of the leasing costs of an automobile directly to the lessor.

For the purpose of your question, it can be assumed that all or substantially all of the distance travelled by the automobile is for employment-related purposes, and that the employer pays all of the operating costs of the vehicle. With respect to the automobile lease, the employer and employee each pay 50% of the leasing costs directly to the leasing company and both the employer and employee are lessees under the lease. You ask whether the employee’s standby charge can be reduced by the amount that the employee pays directly to the lessor.

When an employer, or a person related to the employer, makes an automobile available to an employee, an amount is included in the employee’s income as a reasonable standby charge. In our view, the fact that the employee is a co-lessee under a lease does not negate the fact that the employer has made an automobile available to that employee by agreeing to be responsible for 50% of the lease payments required under the terms of the lease. The calculation of a reasonable standby charge is determined according to the formula in subsection 6(2) of the Act and is based on the employer’s cost of either purchasing or leasing the automobile. While paragraph 6(1)(e) of the Act reduces the amount of the standby charge by any amount which the employee pays in the year to the employer or to a person related to the employer for the use of that automobile, there is no provision in the Act by which a standby charge can be reduced for amounts which the employee pays directly to the lessor of the automobile, unless the lessor is related to the employer. You suggest that this result is inequitable since the employee is paying 50% of the lease costs yet has minimal personal use of the automobile.

Although the standby charge in the situation you describe is higher than it would be if the employee were to reimburse the employer for 50% of the lease cost, an employee who is required to pay lease costs directly to a lessor (other than a lessor who is related to the employer) for an automobile which is used in the course of the performance of his or her duties would presumably be entitled to a deduction under paragraph 8(1)(h.1) of the Act for that portion of the employee’s share of the lease cost which relates to usage of the vehicle for employment-related purposes. In other words, under the above-noted assumptions, the employee’s standby charge is based solely on the employer’s share of the lease cost with no reduction for amounts paid by the employee to the lessor, but the employee is entitled to a deduction of 95% of the employee’s share of the lease costs if the conditions in paragraph 8(1)(h.1) of the Act are otherwise met. Although the net effect on the employee’s income is not the same as it would be if the employee had reimbursed the employer for 50% of the lease costs, the difference should not be significant, and will vary depending upon the level of personal use of the vehicle.

For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Department’s mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version or they may request a copy severed using the Privacy Act criteria which does not remove client identity. Requests for this latter version should be made by you to Jackie Page at 613 957-0682. The severed copy will be sent to you for delivery to the client.

J.F. Oulton, CA
Manager
Business, Property and Employment Section III
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

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