Principal Issues: [TaxInterpretations translation]
Should the discount obtained by an employer be taken into account in calculating the standby benefit for the employee who has the vehicle at the employee’s disposal?
Position: If the employer leases the vehicle, no. If the employer buys the vehicle, yes.
Reasons: Interpretation of the Act - Previous positions
2008-026576 XXXXXXXXXX Anne Dagenais, Advocate, M. Fisc. April 10, 2008
Dear Madam,
Subject: Request for Technical Interpretation
Taxable Benefit - ecoAuto Program 6(1)(e) and 6(2)
This is in response to your email of January 18, 2008, in which you asked for our opinion regarding the calculation of the taxable benefit to an employee when rebates are made to an employer under the ecoAuto program. We apologize for the delay in responding to your question.
Unless otherwise indicated, all statutory references herein are to the provisions of the Income Tax Act (the "Act").
Your Question
Should the discount obtained by an employer be taken into account in calculating the standby benefit for the employee who has the vehicle at the employee’s disposal?
Our Comments
The ecoAUTO Rebate Program is an initiative under the ecoTRANSPORT Strategy to reduce greenhouse gas emissions and air pollutants from the transportation sector. It encourages consumers to consider fuel efficiency when purchasing or leasing a vehicle.
Section 6 provides that where an employer makes an automobile available to an employee for personal use, the employee must include an amount as a taxable benefit in computing employment income. The value of the benefit takes into account the availability of the automobile and the operating costs of the automobile paid for by the employer, if any. The calculation of the availability benefit, i.e., the standby charge for an automobile, is provided for in paragraph 6(1)(e) and in the calculation formula as set out in subsection 6(2), while the calculation of the operating cost benefit is provided for in paragraph 6(1)(k).
Under subsection 6(2), to calculate the benefit in respect of an employer-owned automobile, the fourth element of the formula A/B × [2% × (C×D)] applies. Element C refers to the cost of the automobile to the employer.
In a situation where the employer purchases the vehicle made available to the employee and in light of the above, it is our view that for the purposes of element C in subsection 6(2), the rebate available to an employer under Transport Canada's ecoAUTO Rebate Program should be taken into account in calculating the cost of the property acquired.
Under subsection 6(2), to calculate the benefit in respect of an automobile leased by the employer, the third element of the formula 2/3 × (E - F) applies. Element E refers to the amounts that can reasonably be considered to be payable to a lessor by the employer for the rental of the automobile for the period during which the automobile is made available to the employee.
In a situation where the employer leases the vehicle made available to the employee, it is our view that for the purposes of element E in subsection 6(2), the amounts payable to a lessor do not include the rebate that an employer may receive under Transport Canada's ecoAUTO Rebate Program. Thus, given that this rebate is independent of the lease agreement, we are of the view that it is not necessary to take into account the rebate in question in calculating the benefit to the employee.
We note that there is a disparity depending on how the vehicle is held by the employer. In that respect, although that disparity is not desirable, it should be noted that insofar as the maximum rebate is $2,000, the resulting taxable benefit is negligible.
Best regards,
Randy Hewlett
Manager
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.