26 October 2010 External T.I. 2011-0419221E5 - Employer-Provided Vehicle

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.

Principal Issues: Will a taxable benefit arise in respect of the provision of an employer owned vehicle to employees who are "on-call" and are required to take the vehicle home at the request of the employer in order to attend emergencies outside regular business hours?

Position: Yes, a taxable benefit will arise with respect to the personal use of the motor vehicle such as driving from work to home and back. However, where certain conditions are met, the benefit may be calculated at a reduced rate pursuant to the CRA administrative position outlined in ITTN No. 40.

Reasons: Where the motor vehicle is an "automobile" as defined in subsection 248(1), a standby charge and operating benefit will arise under paragraphs 6(1)(e) and 6(1)(k) with respect to the personal use. Where the motor vehicle is not an "automobile", a taxable benefit will arise under paragraph 6(1)(a) with respect to any personal use.

XXXXXXXXXX
					2011-041922
					Andrea Boyle, CGA

October 26, 2011

Dear XXXXXXXXXX :

Re: Employer-Provided Vehicles

I am writing in reply to your letter of August 18, 2011 concerning whether the provision of employer-owned motor vehicles to employees in the situation described will give rise to a taxable employment benefit.

You have indicated that the employer, XXXXXXXXXX , provides vehicles to XXXXXXXXXX in order to facilitate an immediate response to incidents that could occur at any time. The officers are required to take the employer-provided vehicles home each day in the event that they are required to respond to an emergency outside of regular business hours. You have not indicated whether the employees are permitted to use the vehicles for personal travel other than from home to work and back or whether the vehicles are considered to be "automobiles" for income tax purposes.

The particular situation outlined in your email relates to a factual one, involving specific taxpayers. Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the internet at http://www.cra-arc.gc.ca. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office, a list of which is available on the "Contact Us" page of the CRA website. We are, however, prepared to offer the following general comments, which may be of assistance.

All statutory references in this letter are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended ("the Act").

When an employer makes a motor vehicle available to an employee for his or her personal use, this generally gives rise to a taxable employment benefit. The use of an employer-provided motor vehicle by an employee to travel between his or her home and a regular place of employment is considered personal notwithstanding that the vehicle may be required because the employee is "on-call" for emergency purposes. However, where the employee proceeds directly from home to a point of call other than the employer's place of business to which the employee regularly reports or returns home from such a point, the use of the vehicle is considered employment-related.

Based on the information that you have provided, it is not clear what type of motor vehicles are provided to the officers. Whether a particular motor vehicle is considered to be an "automobile", as defined in subsection 248(1) is a question of fact, and is important in determining the appropriate method of calculating the employment benefit arising with respect to the personal use of the motor vehicle by the employee.

The taxable benefit arising on the personal use and availability of a motor vehicle that is considered an "automobile" is included in the employee's income under paragraph 6(1)(e) as a "standby charge" and, where the employer pays any of the operating costs of the automobile, an "operating cost benefit" is also included in the employee's income under paragraph 6(1)(k).

Under the definition in subsection 248(1), an "automobile" means 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. An "automobile" does not include, among other things, vans, pick-up trucks, or similar vehicles that:

• can seat no more than the driver and two passengers, and in the year it is acquired or leased, is used primarily to transport goods or equipment in the course of business; or
• in the year it is acquired or leased, is used 90% or more of the time to transport goods, equipment, or passengers in the course of business.

If the vehicle provided to an employee is not included in the definition of an "automobile", there is no standby charge or operating expense benefit for the availability of the motor vehicle, however, a taxable benefit will still apply for any personal use of the motor vehicle under paragraph 6(1)(a). The amount of the benefit under paragraph 6(1)(a) would be based on a reasonable estimate of the fair market value of the benefit derived by the employee from the personal use.

The CRA generally accepts that the employment benefit arising from the personal use of the motor vehicle that is not an automobile will be considered reasonable if it is calculated based on the rates prescribed in section 7306 of the Income Tax Regulations. In most areas of Canada, the prescribed rate is currently 52 cents per kilometre for the first 5,000 kilometres driven and 46 cents for each additional kilometre.

Alternatively, where four conditions are met, the CRA has an administrative policy regarding the determination of a reasonable motor vehicle benefit under paragraph 6(1)(a) where the employer-provided vehicle is not an automobile. The CRA will generally accept that the operating benefit rate as prescribed in section 7305.1 of the Income Tax Regulations (currently 24 cents per kilometre) represents a reasonable benefit for the personal use of the vehicle, where all of the following four conditions are met:

a) The motor vehicle is not an "automobile";

b) You tell the employee in writing that he or she cannot make any personal use of the vehicle, other than travelling between work and home. Your employee will have to maintain logbooks of the vehicle's use as proof that there was no other personal use;

c) You have valid business reasons for making the employee take the vehicle home at night (such as the employee is on-call to respond to emergencies and you provide the vehicle so the employee can respond more effectively to emergencies);

d) The motor vehicle is specifically designed or suited for your business or trade and is essential for the performance of your employee's duties. The following examples meet both conditions (see the CRA publication T4130 Employers' Guide - Taxable Benefits and Allowances for more examples):

i) The vehicle is designed, or significantly modified, to carry tools, equipment, or merchandise. Your employee has to have the vehicle to do his or her job.

ii) The vehicle, such as a pick-up truck or a van, is suitable for and is consistently used to carry and store heavy, bulky, or numerous tools and equipment. It would be difficult to load and unload the contents. The vehicle is essential to your employee in performing his or her job.

iii) Your employee is on call for emergencies (such as those described above), and has to use a vehicle which:

• is a clearly marked emergency-response vehicle;
• is specially equipped to respond rapidly; or
• is designed for the purpose of carrying specialized equipment to the scene of an emergency.

We trust that these comments will be of assistance.

Yours truly,

Guy Goulet C.A., M.Fisc.
Manager
for Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch