Personal use of a company-owned automobile

If your company provides you or any of its employees with a vehicle for personal use, a taxable benefit has to be reported. This benefit is comprised of two parts: a “standby charge,” which reflects the personal access to the car; and an operating benefit, which reflects the personal portion of operating expenses paid by your company.

In general, the standby charge is 2% of the original cost of the car, including PST and GST or HST, for each month in the year the car is made available for use. If the car is leased, the standby charge is generally two-thirds of the lease cost, net of insurance costs.

The standby charge can be reduced if the vehicle is used more than 50% of the time for employment purposes and annual personal driving doesn’t exceed 20,000 km. In this case, the standby charge (as calculated above) is multiplied by the following fraction:

Personal km ÷ 1,667 km per 30-day period (to an annual maximum of 20,004 km)

The standby charge included in your income as a taxable benefit is reduced by any reimbursement you make to your employer during the year for the use of the vehicle (other than in respect of operating expenses).

Maintaining accurate mileage records to support this claim should be part of your daily routine. In general, travel between your workplace and residence does not constitute employment use. If you stop at a customer’s location for employment purposes on your way to or from work, however, this travel may be considered employment related.

The Quebec government requires employees to keep a mileage logbook to support their personal and business use of a motor vehicle, and to provide a copy of the logbook to their employers within 10 days of the calendar year-end or within 10 days of returning the vehicle, if earlier. Employees who do not provide a copy to their employers may be fined $200.

Tax tip: The standby charge calculation is based on the original cost of the car and doesn’t decrease as the car’s value declines with age. After a few years, it may be cheaper to eliminate this benefit by buying the car from the company at its fair market value.

Employees who sell or lease automobiles may qualify for a reduced standby charge. In these cases, the standby charge is generally calculated at 1.5% instead of 2%. Note that in such cases, the calculation is based on the average cost of the vehicles acquired by the employer for sale or lease. Your tax adviser can help you with the details of the calculation.

There is also an exemption from the automobile benefit provisions for clearly marked police, fire and emergency medical service vehicles. In addition, extended-cab pickup trucks used at remote or semi-remote work sites are also excluded from these provisions. However, there may still be an operating benefit associated with such vehicles.

Operating costs

In addition to the standby charge, a separate and additional benefit must be reported when the employer pays any portion of the automobile’s operating costs.

The CRA has indicated that virtually all expenses associated with an automobile are operating costs. This includes the cost of gasoline, oil, tires, maintenance and repairs, net of insurance proceeds. Licence and insurance costs are also considered operating costs. However, parking charges are not considered operating costs.

The operating expense benefit is determined by applying a prescribed amount per km of travel for personal purposes. For 2016 this amount is $0.26 per km of personal use, less amounts reimbursed to the company in respect to the operating costs. This amount includes a GST/HST component. For taxpayers employed principally in selling or leasing automobiles, the prescribed rate is $0.23 per km.

If the automobile is used primarily (more than 50%) for employment purposes, an optional formula—calculated as 50% of the standby charge—can be used to determine the operating cost benefit. To use this method, the employee must inform the employer by the end of the calendar year that she or he would like to use the optional formula to determine the operating cost benefit.

Tax tip: Employees provided with employer-owned vehicles should keep records detailing the personal and employment use of the car to determine which option is more beneficial. Review the automobile arrangement to ensure that the real benefit, if any, justifies the complex record keeping required. Alternative arrangements of monthly allowances or mileage compensation may provide better real compensation and ease the paper burden.

If your business is registered for GST/HST, the taxable benefit is deemed to be a taxable supply and GST/HST must be remitted on the benefit amount (topic 49).