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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues:
(1) What is the meaning to be given to the expression "cost of the automobile" for purposes of element "C" of the formula in subsection 6(2) of the Act where an employee (or shareholder) reimburses a corporation for a portion of the capital cost of the automobile, since this will be the "cost" used to compute the automobile standby charge?
(2) Will this amount also be the capital cost of the automobile for purposes of determining the CCA classification of the vehicle?
Position:
(1) If all the facts indicate that an employee (or shareholder) and a corporation intend on jointly owning an automobile, whereby the amount paid by the employee (or shareholder) to the corporation does not represent a reimbursement for actual use of the automobile as described in subparagraph 6(1)(e)(ii) of the Act, the cost of the automobile to the corporation for purposes of calculating a standby charge will be the amount paid by the corporation less the amount reimbursed by the employee (or shareholder).
(2) This "net amount" will also be considered the capital cost of the automobile to the corporation in determining whether it will be classified as a passenger vehicle included in class 10.1.
Reasons:
Previous Opinion noted below, Subsection 6(2) and Subparagraph 6(1)(e)(ii), and element "A" definition of UCC in subsection 13(21).
XXXXXXXXXX 2001-010732
Randy Hewlett, B.Comm.
January 10, 2002
Dear XXXXXXXXXX:
Re: Interpretation Request: Cost of an Automobile - Standby Charge
We are writing in response to your letter dated October 23, 2001, wherein you requested our opinion on the above-noted matter in a hypothetical situation.
In your letter, you describe a situation in which a corporation acquires an automobile with an invoice cost of $40,000. An individual who is a shareholder and general manager of the corporation reimburses the corporation $10,000 towards the capital cost of the automobile. You inquire as to whether the cost to the corporation of the automobile for purposes of calculating the standby charge under subsection 6(2) of the Income Tax Act (the Act) is $30,000 or $40,000. As well, you inquire whether the automobile would be a class 10 or 10.1 asset.
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 IC 70-6R4, Advance Income Tax Rulings, dated January 29, 2001. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments.
Element "C" of the formula in subsection 6(2) of the Act, that is used to calculate a reasonable standby charge for the use of an automobile made available to an employee (or shareholder), is the "cost of the automobile to the employer" where it owns the vehicle at any time in the year. In our view, if all the facts indicate that an employee (or shareholder) and a corporation intend on jointly owning an automobile, whereby the amount paid by the employee (or shareholder) to the corporation does not represent a reimbursement for actual use of the automobile as described in subparagraph 6(1)(e)(ii) of the Act, the cost of the automobile to the corporation for purposes of calculating a standby charge will be the amount paid by the corporation less the amount reimbursed by the employee (or shareholder). This "net amount" will also be considered the capital cost of the automobile to the corporation in determining whether it will be classified as a passenger vehicle included in class 10.1.
We trust our comments will be of assistance to you.
Yours truly,
John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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