| February 1, 1990 | |
| To - File | From - A. Humenuk |
| 957-2135 | |
| File No. 7-3550 |
Subject: Standby Charge
The attached memorandum to Source Deductions Division concerns the calculation of the taxable benefit to employees associated with an employer provided automobile in a particular situation.
Brief Description of Transactions
The employer provides passenger vehicles to its executives as part of their compensation package and has chosen a loan/lease arrangement over leasing or purchasing the vehicle. The employer provides an interest-free loan to the leasing company equal to the purchase price of the vehicle to be leased. The leasing company repays the loan over the period of the lease and the employee benefits by way of a reduced standby charge resulting from the lower lease costs. Considering the cost of money and opportunity costs, there would appear to be no net economic advantage to the employer of the loan/lease arrangement over either a regular lease arrangement or the purchase of the vehicle.
Issue or Potential Issue
Since the lease cost has been artificially reduced as a result of the loan agreement, can the standby charge be calculated based on the fair market lease value through the application of paragraph 6(1)(a), 6(1)(e) or section 245 or 246 of the Act? In the alternative does section 80.4 and subsection 6(9) of the Act apply in respect of the interest-free loan to the lessor?
Comments
23
21(1)(b)
P. FuocoChiefPersonal and General SectionBusiness and General DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch