Dollars and Sense: Vehicle Expenses Part 2

By Sheila Nelson, CA

Last time, I talked about the use of your personal vehicle for business or employment purposes. What happens if the vehicle you use is owned by the company that employs you?

If you use an employer’s automobile for personal use, you may have to include in your income both a "standby charge" and an "operating cost benefit" each year. As discussed last time, this will require you to keep a mileage log to track your total and business usage of the automobile.

Before discussing the standby charge and operating cost benefit, it is important to note that the word "automobile" is a defined term. For example, it generally doesn’t include an ambulance, a bus, a vehicle used more than 90% for the transportation of goods, equipment or passengers and so on. There are also special rules for vehicles used at special or remote work sites. The usage of the vehicle has to be reviewed to determine if it can be excluded from these taxable benefit rules. It is paramount, therefore, that a mileage log be kept.

In general, the standby charge is calculated at either 2% per month of the capital cost or 2/3 of the lease cost of the automobile. The standby charge will be prorated for personal use only if you use the automobile greater than 50% for business. Of course, a log book will be the most persuasive evidence if you are trying to meet this test.

Where there is no standby charge, the operating cost benefit is based on all the expenses associated with the automobile, including gas, oil, repairs and maintenance and tires that are paid by your employer. The percentage of these costs that you take into income will equal your percentage of personal use of the automobile.

Where there is a standby charge, there are 2 methods of calculating the operating benefit. The first method is calculated as $.22 multiplied by the number of personal-use kilometers. The second alternative applies where the automobile is used more than 50% for business. In this instance, the operating benefit is simply ½ of the standby charge.

There are special rules that apply if you are in receipt of a taxable or tax-free allowance. Also, different rates for the standby charges and operating cost benefits apply to automobile salespersons.

As a last point, you may have an employer that requires you to take the company vehicle home with you at night. There have been several decisions, unfortunately only informal ones at this point, which would suggest this mileage from home to work and back again is business related. Currently, the Canada Revenue Agency is sticking to its previous position that this mileage is personal and a taxable benefit should result. We’ll see what happens.

Sheila Nelson is a CA with Chan Foucher LeFebvre LLP  www.cflca.com

You can reach her by email :     sheilan@cflca.com

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