20 April 1999 Ministerial Letter 9905088 - TAXABLE BENEFIT - STANDBY CHARGE

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.

XXXXXXXXXX

Dear XXXXXXXXXX:

The Honourable Herb Dhaliwal, Minister of National Revenue, has asked me to reply to your letter of February 2, 1999, concerning employee automobile benefits.

The Income Tax Act provides that the value of a benefit derived by an employee from the personal use and availability of an automobile supplied by an employer is required to be included in calculating the employee’s income. This value is equal to a prescribed amount, currently 14 cents, per kilometre for operating costs in connection with personal use and a reasonable standby charge. In general, this standby charge is 2 per cent per month of the cost of the automobile to the employer, calculated with reference to the number of days the automobile was made available to the employee or to a person related to the employee. However, this standby charge may be reduced when the personal use is less than 1,000 kilometres per month and the business use portion of the total kilometres travelled is 90 per cent or more. Further, provided that the automobile is used primarily for business purposes, an amount equal to one-half of the standby charge benefit may be used as the amount of the operating costs benefit in lieu of the 14 cents per kilometre calculation. Enclosed is a copy of Interpretation Bulletin IT- 63R5, Benefits, Including Standby Charge for an Automobile, from the Personal Use of a Motor Vehicle Supplied by an Employer - after 1992, which provides further details concerning the calculation of the benefit.

In your letter, you indicate that the original operating costs to the employer include Goods and Services Tax (GST) and that an employee is charged GST on top of the original costs. For taxation years prior to 1996, the value of the benefit for operating costs included in income was calculated without reference to the GST. The GST portion of the benefit was computed separately as 7 per cent of the benefit, excluding any operating costs relating to zero-rated or tax-exempt supplies such as insurance and licenses, and was added to the amount to be included in the employee’s income. In order to simplify the calculation of the benefit for operating costs, for 1996 and subsequent taxation years, the value of the benefit for operating costs to be included in an employee’s income is to be calculated as a single cost, inclusive of all relevant taxes, that is, federal GST and provincial sales tax, paid by the employer. In calculating the operating costs benefit to the employee, GST should not be included on top of the GST that already is included in the operating costs paid by the employer.

You also indicate that since the standby charge is based on the original cost of the automobile at a rate of 2 per cent per month, the whole cost of the automobile is accounted for after 4 years. You believe that this is unfair and request an amendment to the law to use either the employer’s depreciated value of the automobile or a current market price for the automobile to calculate the amount of the standby charge. You also ask that the GST be eliminated from the calculation of the benefit for operating costs. Revenue Canada only administers legislation as proposed by the Department of Finance and enacted by Parliament. Your comments regarding the fairness of income tax legislation as well as your suggestions for future changes to the legislation relate to tax policy, which is the responsibility of the Department of Finance. Accordingly, I have sent a copy of your correspondence to Mr. Munir Sheik, Assistant Deputy Minister, Tax Policy Branch, Department of Finance, for his consideration.

I appreciate the opportunity to respond to your concerns.

		Yours sincerely,

		Bill McCloskey
		Assistant Deputy Minister
		Policy and Legislation Branch
Attachment
c.c. Mr. Munir Sheikh
      Assistant Deputy Minister
      Tax Policy Branch
      Department of Finance
Encl:
Gwen Moore
March 8, 1999
952-1506

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