Principal Issues: What are the tax consequences when an employer made a motor vehicle available to an employee in a given situation?
Position: None. General comments provided.
Reasons: Question of fact. Tax consequences depend among other things on whether or not the motor vehicle qualifies as an automobile within the meaning of subsection 248(1).
XXXXXXXXXX 2017-071301
May 23, 2023
Dear Madam,
Subject: Taxable benefits relating to cars or other vehicles
This letter is in response to your fax of July 5, 2017 requesting our comments on the tax consequences where an employer makes a motor vehicle available to an employee in a particular situation.
In summary, you described a situation where certain employees must assume on-call duty in order to respond to emergencies outside of their regular work hours. In order to respond quickly and effectively to emergency calls during on-call periods, employees are required to use a motor vehicle provided by their employer at all times during their on-call periods. Their movements are, however, limited to a certain area in order to ensure permanent availability. Employees are advised in writing that they must keep a logbook for their personal use of the motor vehicle.
The motor vehicle is a minivan clearly identified with the employer's name. The employer has adapted the motor vehicle so that it can be used to transport all the equipment required by employees to carry out their employment-related tasks. Employees must return the motor vehicle to the employer when they are not on call.
Unless otherwise indicated, all legislative references herein are to provisions of the Income Tax Act (the "Act").
This technical interpretation provides general comments about the provisions of the Act. It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC70-6R12, Advance Income Tax Rulings and Technical Interpretations.
Specific provisions of the Act provide for the inclusion of certain benefits in computing an employee's income when the employer makes a motor vehicle available to the individual. The method of calculating these benefits varies depending on whether or not the motor vehicle qualifies as an "automobile" within the meaning of subsection 248(1).
Thus, in order to determine the tax consequences when an employer makes a motor vehicle available to an employee, it must first be established whether or not the motor vehicle is an "automobile" within the meaning of subsection 248(1).
“Automobile" within the meaning of subsection 248(1)
Subsection 248(1) defines an "automobile" as 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 9 persons, including the driver, but does not include a vehicle referred to in any of paragraphs (a) to (d) of that definition. In the particular situation, subparagraphs (e)(i) and (ii) of this definition are particularly relevant and exclude the following motor vehicles:
(e) a motor vehicle
(i) of a type commonly called a van or pick-up truck, or a similar vehicle, that has a seating capacity for not more than the driver and two passengers and that, in the taxation year in which it is acquired or leased, is used primarily for the transportation of goods or equipment in the course of gaining or producing income,
(ii) of a type commonly called a van or pick-up truck, or a similar vehicle, the use of which, in the taxation year in which it is acquired or leased, is all or substantially all for the transportation of goods, equipment or passengers in the course of gaining or producing income,
Where a motor vehicle is designed primarily to transport individuals on highways and streets, it is our view that the mere fact that the vehicle is adapted by an employer for a particular use does not change this fact. Consequently, a minivan is generally an "automobile" within the meaning of subsection 248(1), even if it has been adapted by an employer to be used to transport equipment, unless one of the exceptions provided for in subparagraphs (e)(i) and (ii) of that definition applies.
Determining whether or not a motor vehicle is excluded from the definition of "automobile" in subsection 248(1) pursuant to one of the exceptions provided for in subparagraphs (e)(i) and (ii) of that definition is, however, a question of fact on which we are unable to express an opinion in the context of a technical interpretation. We can, however, provide you with some general comments to help you reach a conclusion on this matter.
First, the exceptions provided for in subparagraphs (e)(i) and (ii) of the definition of "automobile" in subsection 248(1) apply to vehicles of the van or pick-up truck type, or of a similar type.
Generally, a vehicle of a type similar to a van or pick-up truck for the purposes of the definition of "automobile" in subsection 248(1) is a vehicle that has the same specifications and the same function as a van or pick-up truck.
In our view, a minivan is generally a vehicle of a type similar to a van-type vehicle because of its resemblance to a van, both in its design and in its use.
Second, the exceptions provided for in subparagraphs (e)(i) and (ii) of the definition of "automobile" in subsection 248(1) require a condition of use of the vehicle.
Subparagraph (e)(i) of that definition requires that, in the taxation year in which the vehicle is acquired or leased, it is used primarily for the transportation of goods or equipment in the course of gaining or producing income. Subparagraph (e)(ii) of that definition requires that the use of the automobile, in the taxation year in which it is acquired or leased, is all or substantially all for the transportation of goods, equipment or passengers in the course of gaining or producing income.
Determining whether a vehicle is used primarily, or all or substantially all for a particular purpose is, however, a question of fact that can only be resolved after examining all the facts relevant to a particular situation. Generally, such a determination is made by the employer since it has all the relevant information to make such a determination properly.
Finally, the exception provided for in subparagraph (e)(i) of the definition of "automobile" in subsection 248(1) requires that the vehicle have a maximum of three seats.
In calculating the number of seating positions in a motor vehicle for the purposes of this subparagraph, a seat would generally not be counted if the installation made to the motor vehicle is of a permanent nature. This is the case, for example, where the seat cannot be expected to be used to seat a passenger without modifications to the vehicle being required in order to be able to reuse the seat.
Consequently, a minivan that originally had more than three seats could still be considered to have a maximum of three seats for the purposes of subparagraph (e)(i) of the definition of "automobile" in subsection 248(1) if the modification reducing the number of seats to a maximum of three seats is of a permanent nature.
Tax consequences
If it is determined that the employer has made available to an employee a motor vehicle that is an "automobile" within the meaning of subsection 248(1), two types of benefits must be included in the employee's income. A benefit relating to the standby charge for an automobile must be computed under paragraph 6(1)(e) and subsection 6(2), as well as a benefit relating to operating expenses computed under paragraph 6(1)(k).
If it is determined instead that the motor vehicle made available to the employee does not satisfy the definition of "automobile" in subsection 248(1) and that the employee uses it for personal purposes, a benefit must instead be included in computing the employee's income under paragraph 6(1)(a).
All the details relating to computing benefits relating to a motor vehicle provided by the employer, whether or not it is an "automobile" within the meaning of subsection 248(1), are explained in Chapter 2 of Guide T4130, Employers' Guide - Taxable Benefits and Allowances.
Please note that the use by an employee of a motor vehicle made available to the employee by the employer for travel between the employee’s residence and the employee’s usual place of work, as well as all travel not directly related to the employee’s employment, is considered personal use. This is the case even if the motor vehicle is made available to an employee in order that the employee can respond quickly to an emergency situation while on call. However, when an employee uses a motor vehicle from home to travel to an emergency location other than the employee's usual place of work, or returns from that location to the employee's residence, the use of the motor vehicle will generally be considered to relate to the employee's employment.
The employer must declare the value of the taxable benefit calculated for a motor vehicle provided by the employer on a T4 slip, Statement of Remuneration Paid ("T4 slip"). The value of this non-cash benefit must be added to Box 14 "Employment income". In addition, any amount relating to the personal use of the employer's automobile or motor vehicle must be indicated in the "Other information" section at the bottom of the employee's T4 slip under code 34.
An employer should not generally deduct employment insurance premiums on a non-cash or near-cash benefit. For more details on this subject, please refer to Chapter 3 of Guide T4001 Employers' Guide - Payroll Deductions and Remittances and Chapter 1 of Guide T4130 Employers' Guide - Taxable Benefits and Allowances.
You can consult these Guides by visiting the Canada Revenue Agency website at the following addresses:
https://www.canada.ca/fr/agence-revenu/services/formulaires-publications/publications/t4130/guide-employeur-avantages-allocations-imposables.html.
https://www.canada.ca/fr/agence-revenu/services/formulaires-publications/publications/t4001/guide-employeur-retenues-paie-versements.html.
We hope you find our comments of assistance.
Best regards,
Isabelle Landry
Manager
Business and Employment Income Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch