Principal Issues: [TaxInterpretations translation] (1) Should a taxable benefit be added to the income of employees of the City of XXXXXXXXXX for the standby charge for an automobile?
Position: Yes, since the vehicles in question are used partly for personal purposes.
Reasons: Income Tax Act.
XXXXXXXXXX 2005-014782
September 21, 2006
Dear Madam,
Subject: Request for Technical Interpretation - Taxable Benefits Related to the Standby Charge and the Operation of an Automobile
This is further to your letter dated August 20, 2005, sent to us by fax, in which you requested a technical interpretation with respect to the taxable benefits arising from the provision of an automobile by an employer to its employee(s). The facts that are the subject of our technical interpretation are set out below.
RELEVANT FACTS
The facts relevant to your request for a technical interpretation can be summarized as follows:
- The City of XXXXXXXXXX, Quebec provides the foremen of the Public Works Department with a van for travel during working hours;
- Each van is identified, lettered and equipped according to the needs of the department;
- Such vehicles are left at the disposal of the foremen at all times since they are sometimes called upon to carry out tasks related to their employment outside of normal working hours;
- Although travel of a personal nature is generally prohibited, a portion of the kilometres driven by foremen is for personal use;
- During annual vacations, vans are left in the employer's parking lot;
- The employer pays for all expenses related to the operation of the vehicles, such as gas, maintenance and insurance, whether the vehicles are used for job-related or personal purposes.
QUESTION
You wish for a technical interpretation of the following question:
(1) Should a taxable benefit be included in the income of the foremen of the City of XXXXXXXXXX in respect of the use of such vans?
ANALYSIS
Where an employer makes a vehicle available to an employee and the employee uses the vehicle in part for personal use, a taxable benefit must generally be included in the employee's income as a reasonable standby charge. Similarly, if the employer pays all or part of the operating costs of the personal use of the vehicle, the employee as a consequence must also include a taxable benefit.
Subsection 248(1) provides the following definition of "automobile" for the purposes, inter alia, of computing the taxable benefits noted above:
a motor vehicle that is designed or adapted primarily to carry individuals on highways and streets and that has a seating capacity for not more than the driver and 8 passengers,
but does not include
[...]
The list of vehicles excluded from the definition of "automobile" includes, but is not limited to, ambulances, clearly identified emergency response vehicles within a fire or police department, buses, a vehicle used respecting funerals and clearly marked emergency medical response vehicles. According to the information you have provided, the vans provided by the City of XXXXXXXXXX to its foremen constitute "automobiles" for the purposes of the Act.
Paragraph 1 of Interpretation Bulletin IT-63R51, issued by the Canada Revenue Agency ("CRA") on August 21, 1995, reads as follows:
1. For a particular taxation year, the amount to be included in the income of an employee from the use and availability of an automobile provided by the employer or a person related to the employer is the sum of
(a) the value of the benefit determined under paragraph 6(1)(k) for the operating costs related to the use of the automobile in the year that is not in connection with or in the course of the taxpayer's office or employment,
(b) the amount that is deemed to be a reasonable standby charge for the purpose of paragraph 6(1)(e), calculated pursuant to the provisions of subsection 6(2), for the aggregate number of days in the year the automobile was available to the employee or to a person related to the employee, and
[…] less
(d) any reimbursements the employee or the related person makes in the year to the employer or a person related to the employer for benefits otherwise included in income for the standby charge.
It should be noted that subsection 6(7) provides that the amount of goods and services tax paid by the City of XXXXXXXXXX on the purchase of the vans will be included in the calculation of the foremen's taxable benefit.
Benefit relating to the right to use a vehicle
As long as an employer-provided vehicle is used by an employee for personal purposes, a benefit must be included in the employee's income for the taxation year in which the vehicle is available to the employee under paragraph 6(1)(e). Where an employee travels NO kilometres for purposes other than employment, no taxable benefit is to be included in the employee's income.
The CRA considers an automobile to be used otherwise than in the performance of the duties of the taxpayer's office or employment if, inter alia, the taxpayer uses it to run personal errands or to travel between the employee’s place of work and home.
The calculation of the standby charge is based on the following formula, which is found in subsection 6(2): A/B x (2% x (C x D). A different calculation must be made if the vehicles made available to employees are acquired by the employer through a lease.
A reduction in the standby charge may occur if the employer requires the employee to use the vehicle in the performance of the employee's duties of the office or employment and the total distance travelled by the automobile was primarily in connection with or in the course of the employee's duties of the office or employment.
In addition, if the employee pays an amount to the employer for the use of the automobile, such an amount will reduce the amount of the taxable benefit to be included in the employee's income.
Operating expense benefit
Paragraph 6(1)(k) sets out a formula for calculating the amount of the automobile operating expense benefit for an employee. That paragraph sets out the following rule:
(a) where an amount is included in a taxpayer's income as a standby charge
(b) where the employer pays the operating expenses of the automobile for periods during which the automobile was made available to the employee for personal use;
(c) where the employee has not fully reimbursed the employer for all personal use operating expenses within 45 days after the year end;
(d) when the automobile is used primarily in the performance of the duties of the employee's office or employment;
(e) where the employee notifies the employer in writing before the end of the year of the taxpayer’s intention to have subparagraph 6(1)(k)(i) apply:
the amount of the operating expense benefit will be equal to:
(i) one-half of the standby charge, calculated under subsection 6(2), less
(ii) the operating costs of the automobile that are reimbursed by the employee to the employer during the year or within 45 days after the end of the year.
In summary, an amount as an operating expense benefit will only be included in an employee's income if the employer pays the operating expenses of the automobile related to the employee's personal use of it.
CONCLUSION
In this case, we understand that the foremen of the public works department of the City of XXXXXXXXXX use the automobiles at their disposal in part for personal use. In such a case, a taxable benefit must be included in the foremen's income for each taxation year in which an automobile is available to them. A reduction in this benefit may be made if the employer requires the employee to use the vehicle in the performance of the duties of the office or employment and the total distance travelled by the automobile was primarily in the performance of the duties of the employee's office or employment.
In addition, to the extent that the operating expenses associated with the personal use of the vehicles are borne by the City of XXXXXXXXXX, a taxable benefit will be required to be included under paragraph 6(1)(k) (operating expense benefit).
We hope that the above comments are of assistance.
Best regards,
François D. Bordeleau, LL.B.
Individuals, Business and Partnership Section
Income Tax Rulings Directorate
Encl.
ENDNOTES
1 A copy of the bulletin is attached to this letter.