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Business -> Automobiles, Passenger Vehicles and Motor Vehicles -> Automobile Taxable Benefits

Automobile Taxable Benefits

There are many allowances and benefits which constitute taxable benefits, and must be included in the taxable income of an officer, employee or shareholder, and reported on a T4 tax information slip.  When some benefits are paid to employees, Canada Pension Plan (CPP) contributions and Employment Insurance (EI) premiums must be withheld from the amount paid.  In some cases, GST/HST must be included in the value of a benefit on the T4. Canada Revenue Agency (CRA) has a Benefits Chart, which is a table which indicates whether the taxable allowances and benefits are subject to CPP and EI withholdings, and whether certain benefits and reimbursements are subject to GST/HST.  The Benefits Chart is included in T4130 Employers' Guide Taxable Benefits and Allowances (see link at bottom of this article).  Once you have the file open, search for "Benefits Chart".

Parking

 

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.

1.  When the motor vehicle IS an automobile

When an employer makes an automobile available to an employee for personal use, then the employee must pay income tax on the benefit related to the personal use of the vehicle.  The automobile taxable benefit is included as employment income on the T4, and the benefit amount is included in income when payroll deductions for income tax, CPP and EI are calculated.  There are two components of the automobile taxable benefit - the standby charge, and the operating cost benefit.

Standby charge benefit

Operating Cost Benefit

Automobile Sales People

Online auto taxable benefits calculator

Canada Revenue Agency (CRA) has an online automobile taxable benefits calculator.  Employers can use this calculator to determine

bulletcorrect amount of taxable benefits for the employees' T4s for the past year
bulletamounts to include in the employees' current year pay periods when doing payroll

Tax Tip:  It is much simpler for an employee to use their own automobile and be paid a tax-free automobile allowance for the business use of the automobile.

 

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 2013/2014 rate is $0.54 per km for the first 5,000 km , and $0.48 per km in excess of 5,000.

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

Taxable benefit reduction starting in 2009 when the motor vehicle is NOT an automobile

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 2013 rate is $0.27 per km ($0.26 in 2012).

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:

bulletT4130 Employers' Guide Taxable Benefits and Allowances
bulletGST/HST Memorandum 9-2 Automobile Benefits
bullet CRA interpretation bulletin IT-63R5, Benefits, Including Standby Charge for an Automobile, from the Personal Use of a Motor Vehicle Supplied by an Employer - After 1992
bulletAutomobile and motor vehicle benefits and allowances
bulletIncome Tax Technical News #40

 

Revised: December 31, 2013

 

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