Chapter 3: Employer-Provided Automobiles and Standby Charges Flashcards
How does GST/HST or PST apply to taxable benefits?
When a taxable benefit includes goods or services on which an employee would have to pay GST, HST, or PST if purchased personally, these taxes must be included in the value of the benefit.
For example, if an employer provides a reward of a domestic airline ticket, the value of the taxable benefit must include the relevant GST or HST.
What does ITA 6(7) require when calculating taxable employee benefits?
ITA 6(7) requires that the value of taxable benefits must include any GST, HST, or PST paid by the employer on goods or services provided as part of the benefit.
How is the GST/HST amount determined if the employer is exempt from taxes?
If the employer is exempt from GST/HST/PST, a notional amount is added based on what would have been paid if the employer were not exempt.
This notional amount is included in the taxable benefit value.
In the case of a two-week vacation awarded as a reward for outstanding sales, how is the GST calculated on the taxable benefit?
The taxable benefit includes the cost of the trip ($4,500) and the GST ($225) paid by the employer, making the total taxable benefit $4,725.
What are the three types of vehicles defined by the ITA in determining automobile benefits?
Motor Vehicle: A broad term referring to vehicles designed for use on highways and streets, excluding vehicles like trailers and boats.
Automobile: A motor vehicle, often referring to cars, trucks, and SUVs used for both personal and business purposes. Restrictions on Capital Cost Allowance (CCA) apply.
Passenger Vehicle: Defined as automobiles purchased after June 17, 1987, often considered luxury vehicles when exceeding $37,000 or $61,000 for zero-emission vehicles.
What vehicles are not considered ‘automobiles’ under the ITA?
Examples of vehicles that are not classified as automobiles include:
Ambulances
Fire trucks
Clearly marked police cars
Motor vehicles primarily used as buses or taxis
Vans or trucks used for transporting goods or passengers as part of a business
Vans or trucks used more than 90% of the time in the year for transporting goods or passengers in business activities.
What is the significance of the classification of a vehicle as an ‘automobile’ under the ITA?
Classifying a vehicle as an ‘automobile’ affects how employment benefits and CCA deductions are calculated.
Automobiles have restrictions for CCA purposes, particularly for high-cost vehicles or those used personally by employees.
What is the capital cost limit for luxury vehicles under the ITA?
For 2024, the capital cost limit for luxury vehicles is $61,000 for zero-emission vehicles and $37,000 for non-zero-emission vehicles. These limits are applied before adding GST, HST, or PST.
How does the ITA treat vehicles that are not classified as ‘automobiles’ but are still provided to employees for business use?
Vehicles that are not classified as ‘automobiles’ may still provide taxable benefits to employees.
However, the benefit calculation differs from that of an automobile, and specific benefit provisions for automobiles do not apply.
Why does the ITA exclude certain vehicles from the definition of ‘automobile’?
The exclusion of certain vehicles like ambulances, fire trucks, and vehicles used for commercial transportation recognizes their specialized use.
These vehicles are considered essential for business operations, and different tax treatment prevents unfair limits on deductions.
In Exercise 3-7, what factors determine whether a vehicle is considered an ‘automobile’?
Key factors include:
The seating capacity of the vehicle
The percentage of time it is used for business purposes
Whether the vehicle is used to transport goods or passengers
Whether the vehicle is used in a transportation or delivery business
What is the general rule when a motor vehicle is provided by an employer and it is not classified as an ‘automobile’?
When a motor vehicle that is not an automobile is provided by an employer for personal use, it is still considered a taxable benefit, and the fair market value (FMV) of the benefit is determined based on reasonable allowance rates.
What are the CRA’s reasonable allowance rates for motor vehicles provided by an employer for personal use?
The CRA’s reasonable allowance rates for 2024 are:
$0.70 for the first 5,000 kilometers
$0.64 for any additional kilometers
How is the benefit calculated for personal use of a non-automobile motor vehicle provided by an employer?
Benefit = (First 5,000 km × $0.70) + (Additional km × $0.64)
What is the administrative concession offered by the CRA for non-automobile motor vehicles under certain conditions?
In some cases, the CRA allows the benefit to be reduced to $0.33 per personal-use kilometer if the vehicle is required for on-call service or other similar conditions.
