Reimbursement for operating expenses
If the employee reimburses you in the year or no later than 45 days after the end of the year for all actual operating expenses (including GST/HST and PST) attributable to personal use, you do not have to calculate an operating expense benefit for the year.
If the employee reimburses you for part of the automobile's operating expenses in the year or no later than 45 days after the end of the year, deduct the payment from the operating expense of the benefit that you calculated.
In 2019, you provided your employee with an automobile. She drove 30,000 kilometres during the year, with 10,000 kilometres for personal use.
You paid $3,000 in costs associated with maintenance, licences, and insurance.
Calculate the part of the operating expenses that relates to her personal use of the automobile as follows:
(10,000 km ÷ 30,000 km) × $3,000 = $1,000
If she reimbursed you for the total amount of $1,000 in the year, or no later than 45 days after the end of the year, you do not have to calculate an operating expense benefit for her.
However, if she reimbursed you for only $800 of the expenses you paid in the year, or no later than 45 days after the end of the year, the operating expense benefit is $2,000, calculated as follows:
10,000 km × 28¢ = $2,800
$2,800 − $800 = $2,000
Operating expenses paid by employee to third party
If you provide an automobile to an employee and you require your employee to pay a third party for part or all of the operating expenses, such as gas or oil changes, (including the GST/HST and PST) in the year, administratively, we will allow you to deduct the portion of the expenses paid by the employee that are attributable to personal use from the operating expense benefit that you calculated. Your records have to show that the employee paid the expenses directly to the third party.
The portion of the operating expenses that relates to personal use is the percentage obtained by dividing the number of personal kilometres by the total number of kilometres driven by the employee during the year while the automobile was available to the employee.
Excess amounts cannot be deducted from the employee’s standby charge that you calculated.
In 2019, you provided your employee with an automobile. He drove 36,000 kilometres during the year, 12,000 kilometres of which were for personal use.
You paid $3,000 in associated insurance and maintenance during the year. Your employee paid $1,500 for gas and oil changes. He did not reimburse you for any of your costs and you did not reimburse him for any of his costs.
Step 1: Calculate the employee’s operating expense benefit using the flat-rate calculation as follows:
12,000 km × 28¢ = $3,360
Step 2: Calculate the personal portion of the operating expenses that he paid to a third party as follows:
(12,000 km ÷ 36,000 km) × $1,500 = $500
Step 3: Calculate your employee’s taxable operating expense benefit by subtracting the amount you calculated in step 2 from the amount you calculated in step 1, as follows:
$3,360 − $500 = $2,860
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