Calculating Automobile Benefits

Calculating Automobile Benefits

How to calculate the benefit for employer provided automobiles and other vehicles

Taxable benefit calculation for an automobile
The calculation for employer-provided automobiles is made up of two components and applies to automobiles only: the operating cost and a standby charge. These components of the taxable benefit may be reduced in certain circumstances.

Operating cost
In the case of personal use of an employer-provided vehicle, certain employer-paid costs of running the automobile are included when calculating the operating cost. This includes gas, oil, maintenance charges, repair expenses, licences, and insurance. It does not include interest cost, capital cost allowance, lease costs for a leased automobile and parking costs.

For 2013, the benefit is equal to 27¢ per kilometre of personal use.

An employer may choose an optional method if certain conditions are met.

Standby charge The standby charge is designed to estimate the depreciation (wear-and-tear) on the automobile attributable to the fact that the employer provided automobile was used for personal driving.

The calculation is based on the following:

the purchase cost or the lease cost of the automobile;
the number of days that the automobile is made available to the employee; and
the actual extent of personal use (under certain conditions).

It's important to note that the availability of an automobile is a separate consideration from that of personal use. An automobile is considered to be available to the employee until such time that the employee is required by the employer to return the automobile and the control over its use to the employer. It is considered to be available to the employee if it is used by the employee all day or for any part of the day or even if the automobile sits unused in the employee's garage or on the employee's driveway or parking spot.

Reduced standby charge

The purpose of the reduced standby charge is to reduce the tax implications for employees who use the employer-provided automobile as little as possible for personal use.

Prior to 2003, a reduced standby charge was applicable if the total personal kilometres for the year was under 12,000 per year and the business use of the automobile was substantial (at least 90%).

For 2003 and later tax years where the employee uses the vehicle primarily for business purposes - more than 50% of the time - and the employee does not exceed 1,667 kilometres per month (20,004 kilometres per year) when he or she uses the vehicle for personal driving.

This will considerably affect the calculation of the automobile benefit; it will allow many employees whose personal use is restricted to calculate the automobile benefit using the reduced standby charge.

How to calculate the allowance you give to your employee for using his or her own automobile or other vehicle

Instead of providing the employee with a vehicle, you may give the employee an allowance for using his or her own automobile or other vehicle for work. This type of an allowance is a taxable benefit to the employee unless the allowance is calculated solely on the number of business kilometres driven in a year multiplied by a reasonable rate per kilometre.

Reasonable rate per kilometre
We consider an amount to be reasonable only if all of the following conditions apply:

use of the motor vehicle is measured solely by the number of business kilometre driven in a year;
the rate per kilometre is reasonable; and
you did not reimburse the employee for expenses that relate to the same use, except if you reimburse an employee for supplementary business insurance, tolls, ferry charges, and parking.

Generally, we use the rates prescribed in section 7306 of the Income Tax Regulations as a guideline to determine if the rates are reasonable. The rates are set by the Minister of Finance and are subject to review each year and could change. The rates are

2013
54¢ per kilometre for the first 5,000 kilometres
48¢ per kilometre thereafter
an additional 4¢ per kilometre for travel in the Northwest Territories, Yukon, and Nunavut
Flat rate allowances A flat-rate allowance is not considered to be a reasonable allowance since it is not based solely on the business kilometres

Links

Federal:
Employers' Guide - Taxable Benefits (T4130)
Taxable Benefits and Allowances
Benefits, Including Standby Charge for an Automobile, from the Personal Use of a Motor Vehicle Supplied by an Employer - After 1992

Quebec:
Taxable Benefits