Automobile Benefits

Question 1

Summarize the taxable benefits for Employer-Provided Automobile

Answer 1

Automobile available to employee:

• Standby charge: taxable benefit for all use

All operating costs reimbursed:

• Operating benefit: taxable benefit for personal use

Allowance provided to cover costs:

• Reasonable: No taxable benefit
• Unreasonable: Taxable benefit

Question 2

Automobile Standby Charge (Employment Benefits)

Answer 2

• When an automobile is made available to an employee, there will be standby charge if there has been personal use.
• Formula to calculate standby charge A/B (2% X (CXD) + 2/3(E-F) (refer to formula in the textbook).
• If personal use has been over 50% of total use or if personal use is over 20,000km per year, then A/B =1.
• When A/B =1, you are taxed around 2% of the purchase price per month or 2/3 of the lease cost excluding insurance.
• Operating costs (paid by the employer) is calculated as 50% of standby charge if employment use is at least 50% of total use. Otherwise, it is 26 cents per kilometre of personal use.

Question 3

Standyby charge - Automobile owned by employer

Answer 3

Personal use greater than 50% or personal kilometres greater than 20,000 km.:

• 2% of purchase price of car per month

Personal use less than 50%

• (personal km / 1,667 km per mth) x (2% x car price per month)

Note: In both cases, “per month” refers to number of days in year the car was available to the employer rounded to the nearest whole number.

Question 4

Standyby charge - Automobile leased by employer

Answer 4

Personal use greater than 50% or personal kilometres greater than 20,000 km.:

• 2/3 x (lease cost including HST - insurance) per mth

Personal use less than 50%

• [personal km / (1,667 km per mth)] x [2/3 x (lease cost including HST - insurance)]

Note: In both cases, “per mth” refers to number of days in year the car was available to the employer rounded to the nearest whole number.

Question 5

Operating Cost Benefit - personal use greater than 50%

Answer 5

Kilometre Method used:

• when employment use is less than 50% or
• when employment use is greater than 50% but employee chooses not to elect the 50% calculation method

Formula:

• [personal use kms x 26 cents (for 2012)] less any reimbursement made within 45 days after end of year

Question 6

Operating Cost Benefit - personal use less than 50%

Answer 6

Election method (50% Calculation Method) used:

• when employment use is more than 50% and
• employee notifies employer in writing before the end of the particular taxation year.

Formula:

• 50% of standby charge less any reimbursement made within 45 days after end of year

Question 7

Deductibility of Automobile Expenses

Answer 7

If a car allowance is taxable (ie. not based soley on kilometres driven) then automobile expenses may be deducted.

Question 8

Explain the employment expense choice for a commissioned salesperson.

Answer 8

Either

1. Total eligible expenses to the extent of the commission income, or
2. automobile costs alone, without the commission limitation

Question 9

Summarize the calculation of the total car benefit from an employer provided car.

Answer 9

1. Calculate the standby charge
2. Calculate the operating benefit
3. Deduct the amount reimbursed to employer for personal use.