Principal Issues: [TaxInterpretations translation] How to calculate the taxable benefit for the purposes of 15(5), 6(1)(e) and 6(2) when a company owned vintage automobile is made available to an individual.
Position: Question of fact..
Reasons: General comments.
FEDERAL TAXATION ROUNDTABLE, 5 OCTOBER 2012
APFF - CONFERENCE 2012
Question 18
Vintage automobiles and application of subsection 15(5).
Subsection 15(5) states that the value of a taxable benefit with respect to an automobile must be computed according to the rules in subsections 6(1), (1.1), (2) and (7). Some taxpayers hold dozens of collectible vehicles that are treated by a corporation as an investment and clearly have a reasonable expectation of long-term profit. Assume that the taxpayer has control of the vehicles at all times, but uses them very little, except for the necessary maintenance of the vehicles. Assume also that the taxpayer has clear control over them as a shareholder and that section 15 applies.
Question to the CRA
How should the taxable benefit be calculated in this situation? We would like to know if, in general, a taxpayer should use the mathematical calculation provided in 6(1) in such a situation. If so, should it be based on the average value of the vehicles, the value of the most expensive vehicle, all vehicles, or should the general subsection 15(1) rule simply be followed?
CRA Response
Where an individual receives a benefit in connection with the use of an automobile as a shareholder, subsection 15(5) effectively provides that the determination of the value of the benefit to be included in computing the shareholder's income for a taxation year must be made by applying, with the necessary modifications, the rules in subsections 6(1), (1.1), (2) and (7).
Paragraph 6(1)(e) and subsection 6(2) provide that an employee shall include in the determination of the employee’s employment income for a taxation year an amount that is a reasonable standby charge for an automobile where the employer makes an automobile available to the employee to be used for personal purposes. This amount is calculated taking into account the cost of the automobile for the employer.
For the purposes of paragraph 6(1)(e) and subsection 6(2), where a number of automobiles are made available to an employee in a taxation year, an amount that is a reasonable standby charge is calculated separately for each automobile made available to the employee.
However, where the employer and the employee agree and the employee has not been assigned an automobile on a long-term or exclusive use basis, the CRA allows taxpayers to establish the amount of a reasonable standby charge using a method that takes into account the average cost of automobiles. (Footnote 1) In short, under that method, all automobiles that are made available to an employee at any time during the calendar year are grouped into purchase-cost dollar ranges not exceeding $5,000 and the average cost of each range becomes the purchase cost of the cars made available to the employee for the period. Once the average purchase price of an automobile is determined using this method, the employer calculates the usual standby charge for the use of one automobile in each price range in accordance with the provisions of subsection 6(2) and paragraph 6(1)(e).
The question of whether or not an employee has been assigned an automobile long-term or for the employee’s exclusive use is a question of fact that can only be resolved after a full examination of all the facts, circumstances and relevant documents surrounding each situation.
Isabelle Landry
(450) 623-0193
October 5, 2012
2012-045412
FOOTNOTES
Due to our system requirements, footnotes contained in the original document are reproduced below:
1 This method is described in Interpretation Bulletin IT63R5 - Benefits, Including Standby Charge for an Automobile, from the Personal Use of a Motor Vehicle Supplied by an Employer - After 1992.