2016-0638461I7 Vehicle provided to subcontractor

Principal Issues: In a situation where a corporation provides the use of an automobile to an incorporated consultant who is a PSB, how is the benefit reported to the PSB?

Position: Question of fact, likely section 9.

Reasons: See below.

Author: Couvrette, Amanda
Section: 6(1); 9(1); 15(1); 56(2); 246(1)

                                                                                                                 May 9, 2016

 Trust Accounts Program                                                                         HEADQUARTERS
 Debt Management Compliance Directorate                                           Income Tax Rulings
 Collections and Verification Branch                                                        Amanda Couvrette
 Attention: Janice Hurley
                                                                                                                2016-063846

 Re: Automobile benefits

We are writing in response to your email of March 22, 2016, wherein you requested our views concerning the provision of an automobile to an individual who is operating a business through a corporation that carries on a “personal services business” (“PSB”) as defined in subsection 125(7) of the Income Tax Act (the “Act”).

Briefly, the facts as we understand them are as follows.  A corporation provides an automobile to the shareholder of the PSB.  The corporation is not a direct client of the PSB, but rather is related to another corporation that is a client of the PSB.  The corporation issues a T4A to the PSB for the fair market value of the automobile benefit provided.  You would like to know how this amount should be reported by the PSB under the Act and if there are any tax implications to the shareholder of the PSB.

Our Comments

The general rules applicable to the computation of a taxpayer’s income from business or property are applicable.  In computing a taxpayer’s income from a business it is necessary to look not only to profits from transactions in which money is used as payment but also to those arising from transactions in which money’s worth (goods, services or property) is offered as payment.

The arrangement described above, appears to be one of bartering whereby the PSB provides services to its client in exchange for the use of an automobile and possibly other consideration paid by the client.  In this case, the value of the services provided by the PSB must be brought into its income under subsection 9(1) where they are of the kind generally provided by the PSB in the course of earning income from its business.  In arm’s length transactions, where an amount must be brought into income, that amount is the price which the PSB would normally have charged a stranger for its services.  Additional information on barter transactions can be found in Interpretation Bulletin IT-490, “Barter Transactions”.

If the individual shareholder of the PSB is using the automobile for his/her own personal-use, a benefit under one of subsection 6(1), 15(1), 56(2) or 246(1) of the Act may need to be included in the individual shareholder’s income.  The term “benefit” is not defined in the Act and it remains a question of fact as to whether a benefit has been conferred on a particular person by another person and what the amount of any such benefit may be.  Additional information on automobile benefits can be found in Interpretation Bulletin IT-63R5, “Benefits, Including Standby Charge for an Automobile, from the Personal Use of a Motor Vehicle Supplied by an Employer”.

We trust our comments will be of assistance to you.

Yours truly,

Michael Cooke, CPA, CA
Manager
Business Income and Capital Transaction Section
Business and Employment Division
Income Tax Rulings Directorate

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