2017-0696041E5 Automobile Taxable Benefits
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: 1. Whether there is an alternate operating expense benefit calculation for electric automobiles. 2. Whether compensation paid to a lessor by an employer for the total loss of a self-insured leased automobile is included in the standby charge calculation in subsection 6(2).
Position: 1. No. 2. No.
Reasons: 1. The operating expense benefit for an electric vehicle is determined under paragraph 6(1)(k) of the Act, in the same manner as other employer-provided automobiles. 2. A payment of this nature is not an amount payable by the employer to a lessor for the purpose of leasing the automobile and is therefore not included in the standby charge calculation in subsection 6(2) of the Act.
Section: 6(1)(e); 6(1)(k); 8(1)(h.1)
Re: Automobile taxable benefits
We are writing in response to your correspondence of January 4, 2017, to the Department of Finance, which was forwarded to the Business and Employment Income Section on March 30, 2017. We apologize for the delay in responding.
You have asked whether an amount paid by an employer to compensate a lessor for the total loss of an employer-leased automobile is required to be included in the computation of the standby charge in subsection 6(2) of the Income Tax Act (“Act”). It is our understanding that the employer self-insures the leased automobile for collision damages.
You have also asked whether the operating expense benefit calculation for electric automobiles is determined in the same manner as other automobiles (i.e., under paragraph 6(1)(k) of the Act).
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 70-6R11, 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) of the Act. To the extent there is personal use of the employer-provided automobile, paragraph 6(1)(e) of the Act will include a standby charge benefit in the employee’s income. Where a standby charge benefit is included in the employee’s income, and the employer pays for any of the operating costs of the automobile that are related to an employee’s personal use, an operating expense benefit will also be included in the employee’s income under paragraph 6(1)(k) of the Act.
Payments to a lessor on the total loss of an employer-leased automobile
The standby charge included in income under paragraph 6(1)(e) of the Act is calculated under subsection 6(2) of the Act using a formula that takes into account (among other things) the “total of all amounts that may reasonably be regarded as having been payable by the employer to a lessor for the purpose of leasing the automobile.” Paragraph 13 of Interpretation Bulletin IT-63R5, Benefits, Including Standby Charge for an Automobile, from the Personal Use of a Motor Vehicle Supplied by an Employer - After 1992, clarifies that such amounts would include kilometre charges, any charges for repairs and maintenance, provincial sales tax, and terminal charges (i.e., amounts charged at the end of a lease term) less terminal credits (i.e., amounts credited at the end of a lease term).
In technical interpretation 2011-039969, we addressed the computation of the standby charge in a situation involving the total loss of an employer-leased automobile that was self-insured for collision damages. In that document, the employer made a significant payout to a leasing company to terminate the lease as a result of an accident. We confirmed that such a payment would be required to be included in the employer’s cost of leasing the automobile for that year when computing the standby charge under subsection 6(2) of the Act.
We have reexamined the position in technical interpretation 2011-039969 and decided to rescind it. As a result, it is our view that a payment made by an employer to a lessor to compensate for damages (including the total loss of a leased automobile) is not a payment as described in paragraph 13 of IT-63R5, and would not be included in the standby charge calculation in subsection 6(2) of the Act. That is, a payment made for this purpose (i.e., an amount normally covered by insurance) would not be an amount payable by the employer to a lessor for the purpose of leasing the automobile. The items described in paragraph 13 of IT-63R5 (including a terminal charge) are generally reflective of the extra use of a leased automobile over what was contemplated in a lease, and not the loss or damages of an automobile, due to an accident.
Operating expense benefit for an electric automobile
In the situation you describe, several of your employees may be provided with electric vehicles for use in performing their employment duties. These employees would no longer be provided with a gas card and would be required to recharge the battery in the electric vehicle at their homes. It is our understanding that these employees will not have the ability to identify the portion of their monthly electricity bill that pertains to electric vehicle charging.
The operating expense benefit for an employer-provided electric automobile is determined under paragraph 6(1)(k) of the Act (including the per-kilometre amounts prescribed in section 7305.1 of the Income Tax Regulations), in the same manner as other employer-provided automobiles. The Canada Revenue Agency (“CRA”) does not have a specific policy for the expenses of an electric automobile, and the Department of Finance has not prescribed a different per-kilometre amount in respect of electric automobiles for purposes of paragraph 6(1)(k) of the Act.
Under the CRA’s administrative policy regarding third-party reimbursements, the electricity costs that are paid by an employee to a third party and attributable to the personal use of an employer-provided electric automobile (e.g., charging) will reduce the operating expense benefit determined under paragraph 6(1)(k) of the Act where such costs can be established.
If an employer reimburses an employee for reasonable employment-related electricity costs paid by the employee, the reimbursement will not generally give rise to a taxable benefit.
Where an employer does not reimburse an employee for employment-related electricity costs paid by the employee and the employment-related electricity costs can be established, the costs may be deductible by the employee as motor vehicle travel expenses under paragraph 8(1)(h.1) of the Act.
Where it is not possible to produce supporting documentation showing the exact amount of electricity expenses incurred for an electric vehicle, other means for establishing the amount of employment-related electricity costs may be acceptable. For example, the establishment of an average per-kilometre electricity cost could be a reasonable method. However, an employee would need to take into account the use of paid and free charging stations when establishing this cost.
Regardless of the method used to establish the employment-related electricity costs, no amounts may be deducted unless all of the conditions in paragraph 8(1)(h.1) of the Act are met, and the employee obtains a completed and signed Form T2200, Declaration of Conditions of Employment, from his or her employer as required by subsection 8(10) of the Act.
We trust these comments will be of assistance to you.
Nerill Thomas-Wilkinson, CPA, CA
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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