We are writing in reply to your letter of August 27, 1990, wherein you requested our views regarding the application of paragraph 6(1)(e) and subsection 6(2) of the Act with respect to the following hypothetical situation. We apologize for the delay in providing the response.
1. A Co is an automobile leasing company. It buys cars from most of the car manufacturers and leases them primarily to corporate customers.
2. A Co provides company-owned cars to their key employees in order for them to carry out their duties of employment. These cars are also available for personal use.
3. Certain car manufacturers supply demonstrator cars to A Co, at no charge, for periods of time. The cars are driven by A Co's key employees. The car manufacturers believe that this practice is of great promotional value not only for the demonstrator model but to the company as a whole.
4. A Co has ten key employees that have use of company cars. Of the ten cars made available to the employees, three have been supplied by car manufacturers at no charge. It is noted that the cars are not assigned to an employee on a long term basis, but are turned over a number of times in a year. Any particular key employee could be driving a demonstrator at any time.
5. The cost of the seven cars purchased ranges between $20.000 - $25,000 with the average cost being about $22,000.
You have asked for our comments on the tax implications in the above situation.
Our Comments
The question of whether A Co must include the fair market value of the three demonstrator vehicles provided by the car manufacturer in the standby charge calculation depends on the facts. The agreements between the parties reflecting this arrangement would be examined in order to determine whether, in fact, there is no consideration received from A Co for the use of these vehicles. Even though there may be no cash payment from A Co, there may be equivalent consideration in the form of advertising or promotional service provided by A Co in exchange for the use of the demonstrator cars. In this regard, we refer you to Interpretation Bulletin IT-490 which deals with barter transactions.
On the assumption that the value of the consideration for the use of the cars supplied by the manufacturer is the annual cost of leasing a similar vehicles by A Co, that value would be considered as "amounts that may be reasonably regarded as having been payable by the employer to a lessor ... " for purposes of the amount to be included in E of the standby charge calculation in subsection 6(2) of the Act. The comments at paragraph 20 of IT-63R3 concerning "Pooling or Similar Arrangements" would then be applicable.
We trust that these comments are of assistance to you.
Yours truly,
for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch