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Taxable Benefits And The Company Car

Did you know that if you have a company car, you may have to pay income tax on your personal use of the motor vehicle? Whether you are an employee or a shareholder of a company, the company car may result in two taxable benefits [1] included on your T4 slip this year.

These benefits are broken down into two different types:

The standby charge and operating cost benefits are calculated differently.

Standby Charge

The standby charge applies regardless of whether the vehicle supplied is primarily for business use or personal use.  The calculation of the benefit differs slightly depending on whether your employer has purchased or leased the vehicle.

The standby charge is:

Employer Owned Vehicles

1950's car [2] By cliff1066 (CC 2.0) via Flickr

2% of the original cost of the vehicle (plus sales taxes) x the number of days the vehicle is made available to you / 30.  This rate is reduced for car sales people to 1.5% of the average dealer costs for vehicles.

Note:  The standby charge is based on the number of 30 day periods in the year and not the number of months.  This can made a difference in the calculation of the charge.

If both you and your employer have contributed to the purchase of an automobile, the standby charge is reduced by the amount of your contribution.

Employer Leased Vehicles

The annual lease costs (including sales taxes) x the number of days the vehicle was made available / 365. Less: Annual damage and liability insurance costs included in the annual lease costs. Multiplied by 2/3

Alternatively you may use a more simple calculation: The monthly lease costs (excluding insurance) x the number of months the vehicle was available to you.

Note: When your vehicle is leased and you were required to make an upfront lump-sum payment, this payment is prorated over the term of the lease for the purposes of calculating the standby charge.

Lease termination charges are considered a lease payment for the purposes of the standby charge.  If your employer agrees, you may have this fee applied retroactively.  Keep in mind that the CRA will charge interest on the additional taxes payable on the retroactive application.  Consult a tax professional to discuss your alternatives.

In the context of the standby charge the term “available” is interpreted to mean that the vehicle was made available to you or a member of your family whether for business or personal use.

Reduction of the Standby Charge

The standby charge may be reduced proportionally if both of the following conditions apply:

If these conditions are met, your standby charge can be reduced to a percentage of total personal kilometres driven divided by 20,004.

Note: The actual proportional formula is:

A/B, where
A = The lesser of total personal kilometres driven or B.
B = Available Days / 30 x 1,667

Tips:

Operating Cost Benefit

The standby charge is related to the availability of the vehicle while the operating cost benefit relates to the operating expenses paid for your personal use of the vehicle.  There are two options available for the calculation of the operating cost benefit:

Any amount of the operating costs you reimburse your employer within 45 days of the calendar year-end can reduce the operating cost benefit.

Tips:

If Your Employer Provides You With an Automobile Allowance

If you use either an employer supplied car or your own personal vehicle and your employer provides a reasonable allowance for operating costs based on the number of kilometres driven, this benefit is tax free.  The maximum amounts deemed reasonable by the Minister of Finance are located in our Automobile Rates & Limits Table [3].

If the allowance you receive is based on anything other than a per kilometre basis, is considered unreasonable and is to be included as a taxable benefit.

Tip:  If the amount of allowance you receive is unreasonably low you may choose to include the allowance in your employment income and deduct actual business related automobile expenses.

Other Resources

Looking For Professional Help?

If you’re looking for advice or tax planning services, you can contact me [6] directly through my professional tax practice [6].

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