Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Is a standby charge benefit included in income when an employee is required to use, at all times, an employer's automobile which is emblazoned with the employer's logo, colours and advertising?
Position: Likely yes
Reasons: See response
Author: Waugh, Phyllis
Section: 6(1)(e); 6(1)(k); 6(2)
August 31, 2015
Re: Standby charge
Note: All references are to the Income Tax Act (Act), unless otherwise noted.
We are writing in response to your letter dated March 25, 2015, concerning whether a benefit would be included in an employee’s income under paragraphs 6(1)(e) and (k) when an employer-provided automobile (emblazoned with the company’s logo, colours, or other advertising) is made available to an employee. Employees are required under their employment contract to drive the employer-provided automobile at all times (e.g., for employment-related activities, attending company-related events during work hours, travelling from home to the company’s offices, for any personal use).
This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R6, Advance Income Tax Rulings and Technical Interpretations.
The benefit arising from the personal use and availability of an employer-provided automobile is included in an employee’s income under paragraphs 6(1)(e) and (k). To the extent there is personal use of the employer-provided automobile, paragraph 6(1)(e) will include a standby charge benefit in the employee’s income. Where an employer pays for the operating costs of the automobile and a standby charge benefit is included in the employee’s income, an operating expense benefit will arise under paragraph 6(1)(k).
The benefit under paragraph 6(1)(e) is calculated based on the formula in subsection 6(2) and is only reduced when:
* the employee is required by the employer to use the automobile in connection with or in the course of the office or employment, and
* the employee uses the employer-provided automobile primarily (i.e., more than 50 per cent) in connection with or in the course of the office or employment.
Where the employer-provided automobile is only used in connection with or in the course of an office or employment, no benefit will be included in the employee’s income under paragraphs 6(1)(e) or (k).
There is no provision in the Act that would reduce the benefit to be included in income under paragraph 6(1)(e) or (k) because the employer has placed its corporate logo or some other form of advertising on the automobile that is driven by an employee for personal travel. The fact that an employer may derive a benefit (e.g., advertising) does not alter the calculation of the standby charge benefit under subsection 6(2).
You believe that since an employee is required under his or her employment contract to drive an employer-provided automobile at all times, it would be driven only “in connection with or in the course of the office or employment”.
The phrase “in connection with or in the course of the office or employment” is not defined in the Act. Where the legislation does not define a word or phrase, the Canada Revenue Agency (CRA) generally relies on case law and the dictionary definition of the word or phrase.
The Concise Canadian Oxford Dictionary does not define the phrase “in connection with or in the course of the office or employment” but does define the phrases “in connection with” and “in the course of”. This dictionary defines “in connection with” as “with reference to” and defines “with reference to” as “regarding; as regards”. It also defines “in the course of” as “during”. Black’s Law Dictionary defines “course of employment” as “events that occur or circumstances as a part of one’s employment.”
In Reiner v The Queen, 2005 DTC 308, the Tax Court of Canada considered the phrase “in connection with, or as part of the duties of, that office or employment” in determining whether a teacher was entitled to an education tax credit. In examining the meaning of “in connection with”, the Tax Court of Canada cited the Shorter Oxford English Dictionary, 3rd Edition in defining “connects” as “[t]o join, fasten or link together.”
In The Queen v Adams, 98 DTC 6266, while the Federal Court of Appeal did not define the meaning of “in connection with or in the course of the office or employment”, it does provide the following comments concerning the standby charge in subsection 6(2):
The so-called “minimal personal use” exception is contained within the definition of “A” set out in subsection 6(2). Essentially, the exception enables an employee to obtain a reduction in the amount of the standby charge, otherwise applicable, if the following conditions precedents are satisfied. First, the employer must require the employee to use the automobile in the performance of his or her duties of employment. . .
In our view, an automobile is driven “in connection with or in the course of the taxpayer’s office or employment” when there is a direct link between the kilometres driven and an employee’s employment duties. In other words, the kilometres would have to be driven during the performance of employment duties. Although it is a question of fact whether the employee’s travel is personal or employment-related, it is the CRA’s longstanding position, as noted in Chapter 2 of Guide T4130, Employer’s Guide – Taxable Benefits and Allowances, that travelling between an employee’s home and his or her regular place of employment (RPE) is personal travel. That is, generally an employee is not performing his or her duties of employment when travelling from home to an RPE. Where, however, an employer requires an employee to travel directly from a location that is his or her RPE to another location (i.e., a point of call or another RPE), such travel is generally considered employment-related.
You have cited several court cases and CRA technical interpretations to support your position that no benefit is required to be included in an employee’s income under paragraphs 6(1)(e) and (k) when an employer-provided automobile is required to be driven as a condition of employment. The court cases and technical interpretations cited deal with paragraph 6(1)(a) and examine who is the primary beneficiary of the benefit. In addition, a few of the cited cases were informal decisions which the CRA does not consider to have precedential value.
The issue of “who is the primary beneficiary” is considered when determining whether a benefit is included in income under paragraph 6(1)(a). The standby charge benefit is included in income under paragraph 6(1)(e) and determined by the formula in subsection 6(2). Neither paragraph 6(1)(e) nor subsection 6(2) consider “who is the primary beneficiary”. Instead, they only consider employment and personal kilometres driven by an employee. There is nothing in the legislation or case law that provides for a reduction in the standby charge benefit when an employer requires an employee to drive an employer-provided automobile for personal travel even when an employer derives a benefit from such travel.
We trust these comments will be of assistance to you.
Nerill Thomas-Wilkinson, CPA, CA
Business and Employment Income Section
Business and Employment Division
Income Tax Rulings Directorate
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