R. B. Day (613) 957-2110
We are writing in response to, your letter of March 20, 1986 wherein you requested our views regarding the application of subparagraph 6(1)(a)(iii) of the Income Tax Act (the "Act"). We apologize for the delay in replying.
We will respond to your questions in the order in which they appear in your letter.
1. If a company is self-insured in respect of its vehicles, repair costs arising from an accident would be included in the total operating costs of the automobile to the employer, for the purposes of computing an employee benefit under subparagraph 6(1)(a)(iii) of the Act. An imputed cost for self insurance would not be acceptable as a replacement for actual repair costs. This is consistent with the comments set out in paragraph 7 of our Interpretation Bulletin IT-63R2 .
2. In view of the comments in 1 above;
a) Repair costs arising from an accident occurring during business usage would be included in the total operating costs for the purpose of the employee benefit calculations.
b) Provided that your company capitalizes the replacement cost of a vehicle written off as the result of an accident, it is our opinion that such cost would not be included in the total operating costs for computing the taxable benefit. However, if for some reason these costs are charged as an operating expense by the employer, they would be included in the total operating costs for employee benefit computation purposes. This opinion would not be altered by the fact that the accident occurred during business or personal usage.
3. Provided there is a benefit to an employee under paragraph 6(1)(e) of the Act, it is our opinion that an employee would be entitled to make an election under subsection 6(2.2) of the Act.
4. There is no provision in the AVCs. that would permit the computation of a taxable benefit on an "amount per kilometers" basis. Such benefits should be computed with reference to either total operating costs (subparagraph 6(1)(a)(iii) of the Act) or on the basis of a standby charge (paragraph 6(1)(e) of the Act).
Yours truly,
ORIGINAL SIGNED 9Y
P.D. FUOCO
for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch