Business -> Automobile taxable benefits

Parking

Income Tax Act s. 6(1)(a)

When parking is provided by an employer to an employee, the fair market value of the parking, less any payment by the employee for the parking, is generally a taxable benefit to the employee.  The benefit amount is included in income when payroll deductions for income tax, Canada Pension Plan (CPP) and Employment Insurance (EI) are calculated, and is included as employment income on the T4.

There are situations in which parking may not be considered a taxable benefit, such as:

The taxable fair market value of the parking spot is generally the market price for a similar spot in the surrounding area.  Therefore, if a similar spot in the surrounding area is free, there is no taxable benefit.

If the employer provides certain employees with reserved spots, this would probably be considered a taxable benefit.

See also the Canada Revenue Agency (CRA) page on Parking, which has a questionnaire to help you determine if an employer-provided parking spot is a taxable benefit.

Employer's vehicle used by an employee

When an employer  (or a person related to the employer) makes a motor vehicle available to an employee (or a person related to the employee), for personal use, then the employee must pay income tax on the benefit related to the personal use of the vehicle.  When the motor vehicle is taken home by the employee, the travel between home and work is usually considered personal use by the employee, and the benefit from that use must be included in employment income, as a taxable benefit.  There are different ways of calculating the taxable benefit when the motor vehicle IS an automobile, vs when the motor vehicle IS NOT an automobile.

Standby charge benefit

Income Tax Act s. 6(1)(e), s. 6(2)

The standby charge is calculated based on:
    - the original cost of a purchased automobile or the monthly lease cost of a leased automobile (including GST and PST), and
    - the number of months the automobile is available to the employee for personal use (which normally includes driving to and from work), and
    - the number of kilometres driven for both personal and business purposes, and
    - any reimbursement by the employee for the availability of the vehicle.

When the automobile is owned by the employer, the standby charge is:
        2% x cost of automobile x # of months available to the employee in the year

If the automobile is available 12 months of the year, then 24% of the cost of the automobile is included in the employee's income each year.

When the automobile is leased by the employer, the standby charge is:
        2/3 x monthly lease costs (excluding insurance) x # of months available to the employee in the year.

Standby charge reduction

For 2003 and later years, the standby charge may be reduced if:

Example of standby charge calculation for owned vehicle:

The above example assumes no reimbursement has been made by the employee to the employer.

The above rates remain unchanged for 2010.

Operating cost benefit

Income Tax Act s. 6(1)(k), Income Tax Regulations s 7305.1

If the employer has paid the operating costs of an automobile which has been available for the personal use of an employee,  an operating cost benefit must be included in the employee's income, less any reimbursements by the employee to the employer.  The operating cost benefit is based on the kilometres of personal use by the employee, at the following rates per kilometre:

Operating cost benefit reduction:  for 2003 and later years, if the employee uses the automobile primarily (at least 50%) for business purposes, the operating cost benefit may be calculated as 50% of the standby charge, less any reimbursements.

Using the standby charge example above, the operating cost benefit would be:
        14,000 km x $0.22 per km = $3,080

The automobile was used more than 50% for business purposes, so the alternate calculation available is:
        $4,199 x 50% = $2,099.50

Thus, the total taxable benefit to the employee in this example is:
        $4,199 standby charge + $2,099.50 operating cost = $6,298.50

Automobile sales people

Income Tax Act s. 6(2.1), Income Tax Regulations R7305.1

If an individual is "employed principally" in selling or leasing automobiles, then the standby charge and operating cost benefits will be less.

For the operating cost benefit, the following amounts are used for automobile sales people:

For the standby charge, if the employer has purchased one or more automobiles in the year, then at the option of the employer:

2.  When the motor vehicle is NOT an automobile

Income Tax Act s. 6(1)(a)

Where the motor vehicle does not fit the definition of automobile (passenger vehicle), the above standby charge and operating cost benefit amounts are not used, but a reasonable amount must be included in the employee's income for the personal use of the vehicle.  The employer must estimate the fair market value of the benefit, including GST.  The amount an employee would have had to pay for comparable transportation in an arm's length transaction, such as leasing, can be considered to be the fair market value of the benefit.  Where a motor vehicle other than an automobile is essential to the employer's business operation, and the only personal use of the motor vehicle is to provide the employee transportation between home and the employer's place of business, Canada Revenue Agency (CRA) generally accepts the rates from Income Tax Regulations s. 7306 for calculation of the benefit.  The 2009 rate is $0.52 per km for the first 5,000 km, and $0.46 per km in excess of 5,000.  GST must also be added to the benefit amount.

See paragraph 23 of CRA's interpretation bulletin IT63R5 for more detail on this taxable benefit.

Taxable benefit reduction starting in 2009

CRA has announced that, where the employee is prohibited from using the vehicle for personal use, other than the drive to and from work, and certain other conditions are met, the taxable benefit can be calculated using the operating cost benefit rate from Income Tax Regulations s. 7305.1.  For most employees, the 2009 rate is $0.24 per km.

To use the lower rate per km, all of the following conditions must be met:

1. The motor vehicle does not fit the definition of "automobile"

2. Personal use of the motor vehicle by the employee is prohibited, other than commuting between home and work, and the employee has in fact not used the vehicle for any other personal use.

3. The employer has valid business reasons for requiring the employee to take the vehicle home at night, such as

   1. reasonable security concerns regarding the employer's tools and equipment being left at the worksite or overnight at the employer's premises, or

   2. the employee is on-call to respond to emergencies and the vehicle is provided to improve response to emergencies.

4. The motor vehicle is specifically designed or suited for the employer's business or trade and is essential for the performance of the employment duties.

This taxable benefit reduction was announced in CRA's Income Tax Technical News #40. 

Other resources

On TaxTips.ca - see all topics related to vehicles and business

On Canada Revenue Agency website: