Employer provided automobile

Question 1

Employer provided automobile – Standby charge (Taxation)

Answer 1

• Standby charge is a taxable employment benefit that only applies if an employer-provided automobile is available to the employee for personal use
• Calculated as:
  o 2% of the original cost per month available; or
  o 2/3 of the monthly lease payment per month available
• reduced by payments made by the individual to the employer
• reduced standby charge applicable where personal use less than 1,667 km per month and automobile primarily used for business purposes (consider greater than 50%)

Reference: ITA 6(1)

Question 2

Employer provided automobile – Operating cost benefit (Taxation)

Answer 2

• Taxable employment benefit, calculated as:
  o $0.27 (for 2021) per km of personal use; or
  o 50% of the standby charge (only when vehicle used at least 50% for business)
• Operating costs include gas, insurance and maintenance, but not parking

Reference: ITA 6(1)(k)

Question 3

Employer provided automobile – Tax planning (Taxation)

Answer 3

• Consider employee purchasing the car and charging a reasonable per-km allowance (may be more tax effective since the standby charge is based on original cost)
• Consider employee including allowance in income and claiming business portion of actual car expenses if they exceed the allowance
• Consider sale and leaseback for employer-provided cars (leasing may lower tax benefits because otherwise the standby charge is based on original cost)
• Maintain log to justify business vs. personal km
• Lower standby charge by reducing number of days vehicle available for personal use
• Increase business use by visiting clients on the way to and from work

Reference: ITA 6(1), 8(1)