How to calculate the benefit for employer provided automobiles and other vehicles
Once you determine that there is personal driving with respect to a vehicle whether it's an automobile described in the Income Tax Act, or a vehicle that is excluded from the definition, you must calculate the amount of the benefit, make the appropriate deductions, and include the amount in the employee's income.
As mentioned, the method of calculation will depend on the type of vehicle: automobile or other vehicle.
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.
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 gasoline, oil, maintenance charges, repair expenses, less insurance proceeds, licences, and insurance. It does not include interest cost, capital cost allowance, lease costs for a leased automobile and parking costs.
For 2014 and 2015, the benefit is equal to 27¢ per kilometre of personal use.
For 2016, the benefit is equal to 26¢ per kilometre of personal use.
For 2017, the benefit is equal to 25¢ per kilometre of personal use.
For 2018, the benefit is equal to 26¢ per kilometre of personal use.
For 2019, the benefit is equal to 28¢ per kilometre of personal use.
An employer may choose an optional method if certain conditions are met.
For more information, see Guide T4130, Employers' Guide - Taxable Benefits and Allowances and the IT63R5 ARCHIVED - Benefits, Including Standby Charge for an Automobile, from the Personal Use of a Motor Vehicle Supplied by an Employer - After 1992.
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
- 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.
You can calculate the value of the automobile benefit for the employee 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 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.
In 2015, an employee drives a vehicle 25,000 kilometres for business and 15,000 kilometres for personal use in a year (60% for business). Because the personal use of the vehicle does not exceed 20,004 kilometres 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 × 27¢ =||$4,050|
|Plus: Reduced Standby Charge:||$25,000 × 24% (12 x 2%) × 15,000 ÷ 20,004||$4,500|
|Equals: Total Benefit||$8,550|
Taxable benefit calculation for other vehicles
Contrary to popular belief, there is still a benefit for other vehicles that do not meet the definition of an automobile. However, the benefit is calculated differently.
If an employer provides its employees with such vehicles for personal use, a reasonable estimate of the fair market value of that benefit (plus GST) to the employee must be included in the employee's income. There is no standby charge for the availability of these vehicles nor is there an operating cost component. For details of the calculation, see Interpretation Bulletin IT63R5, Benefits, Including Standby Charge for an Automobile, from the Personal Use of a Motor Vehicle Supplied by an Employer - After 1992.
Alternatively, if the only personal use of the automobile is the travel between the employee's home and the employer's business premises, the benefit may be computed on a cents per kilometre basis, see Reasonable rate per-kilometre.
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