Do I Have To Pay Tax On My Use Of Company Vehicle?
Using a company owned motor vehicle for business purposes is not considered a taxable benefit, where as personal use of such vehicle is a taxable benefit. Personal use of a company vehicle includes commuting to and from work, running errands, or allowing a family member who is not a company employee to use the vehicle.
The CRA for its purposes divides motor vehicles into two classes, namely automobiles, and other vehicles. The CRA considers an automobile to be a motor vehicle that is designed or adapted mainly to carry individuals on highways and streets, and has a seating capacity of not more than the driver and eight passengers. All other motor vehicles are considered by the CRA as “Other Vehicles”. CRA however provides certain exceptions in what could otherwise be considered as automobile, as listed here
If the vehicle is an automobile as described above, then there are two components that have to be calculated in determination of TOTAL taxable benefits. These components are; i) standby charge and ii) operating cost.
The standby charge is designed to estimate the cost of wear and tear of the automobile while it was available, for the personal use of the employee, regardless of whether the automobile was actually used for personal use. Essentially, the annual standby charge for a leased or an owned automobile is calculated as two-thirds of it yearly lease cost or 24% of the capital cost of the automobile respectively. You can calculate the exact value of taxable automobile benefit by using the Automobile Benefits Online Calculator.
Reduced standby charge
The purpose of the reduced standby charge is to reduce the tax implications for employees whose personal use the employer-provided automobile is considered minimal. Reduced standby charge applies where the employee is required by terms of a written employment contract to use an automobile to carry out employment duties, and the automobile is primarily used for business purposes (more than 50% of the time), and the employee’s personal use of the automobile does not exceed 1,667 kilometers per month (or 20,004 kilometers per year). When all these conditions are met, the standby charge is reduced to the fraction that personal kilometers bear to 20004. The key in qualifying for the reduced standby charge is to reduce personal use of the automobile while maximizing business use of the automobile. In this regard, it is vitally important that a mileage log book is kept.
The value of the operating cost relating to the personal use of an automobile for 2018 and 2019 is calculated at 26 cents and 28 cents per kilometer respectively. However, if the employees qualify for the reduced standby charge then the operating cost can be calculated at 50% of the reduced standby charge.
In 2018, an employee drives a vehicle 25,000 kilometers for business and 15,000 kilometers for personal use in a year (60% for business). Because the personal use of the vehicle does not exceed 20,004 kilometers a year and the vehicle is used primarily, more than 50%, for business, the reduced standby charge applies as calculated below.
Cost of the employer owned automobile (including PST and GST/HST) $25,000
Personal driving 15,000 km
Number of months made available to the employee 12
Operating expense benefit 15,000 km × 28¢ = $4,200
Plus: Reduced Standby Charge: $25,000 × 24% × 15,000 / 20,004 = $4,500
Reduced operating expense:4,500 x 50% = $2,250.00
Equals: Total Benefit $6,750.00
Taxable benefit calculation for other vehicles
If the employer supplied vehicle is not an automobile, there is still a taxable benefit to the employee who uses the vehicle. However, standby charge and operating cost concepts as described above are not applicable. Instead, a reasonable amount must be included in the employee’s income for the personal use of the vehicle. The employer must estimate the fair market value of the benefit, including GST that the employee would have had to pay for comparable transportation in an arm’s length transaction. Where a motor vehicle, other than an automobile, is essential to the employer’s business operation and the only personal use of the motor vehicle is to provide the employee transportation between home and the employer’s place of business, Canada Revenue Agency (CRA) generally accepts application of per kilometer allowance rates. Such rates for 2019 are 58 cents per kilometer for the first 5,000 km and 52 cents per kilometers for the excess. Under certain conditions, the CRA accepts applications of lower rates per kilometer for determination of taxable benefits for the use of the employer supplied vehicle by an employee.
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