Hi Hutcheson & Co. LLP,
I work for a local construction company and they provide me with a truck to travel to and from job sites. I also use the truck as my main vehicle at home. Can I be charged tax for this?
Thanks for the question. Employer provided vehicles or allowances are common situations in the construction industry as the nature of the job tends to require employees to travel to and from many different job sites.
Simply put, if your company provides you with a vehicle that you can also use for personally, a taxable benefit has to be reported on your personal tax return. The taxable benefit that you are required to report is comprised of the “standby charge” and the “operating benefit”.
These are calculated as follows:
The standby charge is calculated differently depending on if the vehicle is owned or leased. If the vehicle is owned the calculation is generally 2% of the original cost of the vehicle plus HST or GST and PST for each month that the vehicle is available for you to use. For example, if the vehicle cost $30,000 and it was available for use all year the standby charge would be $7,200 ($30,000 x 2% x 12 months). If the vehicle is leased, the standby charge is generally 2/3 of the lease costs for each month that the vehicle is available for you to use.
The standby charge may be reduced if you the vehicle is used more than 50% of the time for employment purposes and your annual personal use does not exceed 20,000 km. The standby charge is reduced by the following formula:
Your total personal km for the year / 1,667 km per 30 day period (up to an annual maximum of 20,004 km). For example, if you drove 10,000 personal km during the year and the vehicle was available for 12 months, the standby charge calculated above would be reduced by 50%.
The standby charge is further reduced by any reimbursement you make to your employer during the year for use of the vehicle.
You will want to ensure that you have adequate support for the personal and work related km driven in case the CRA asks for support. Generally speaking, travel between your home and workplace is considered personal use. Travel from work site to work site and to your place of employment would be considered employment use.
Given that the standby charge is based on the original cost of the vehicle and does not decrease over time it may be more beneficial in some situations for the employee to purchase the vehicle from the employer at its fair market value and have the employer provide you with a reasonable reimbursement for km that were driven for business purposes. The prescribed rates for 2012 are $0.53 per km for the first 5,000 km and $0.47 for each additional km. Keep in mind that any flat allowance paid to you by your employer is considered a taxable benefit. If a flat rate allowance is provided in addition to the per km rate, then both are considered a taxable benefit and included on your personal tax return.
In addition to the standby charge, if your employer pays for the operating costs of the vehicle (gas, oil changes, insurance, maintenance, etc.) then an operating cost benefit must also be calculated and reported on your personal tax return. The benefit is calculated as follows:
$0.26 per personal km driven less any personal reimbursements you made to the company in respect to operating costs. For example if you drove 10,000 personal km during the year, the operating cost benefit would be $260.
If you use the vehicle more than 50% of the time for employment purposes there is an option to use 50% of the standby charge as the operating cost benefit. You would have to inform your employer by the end of the year if this is the option you would like to use in order to determine the operating cost benefit.
As you can see the taxable benefit derived from employer provided vehicles can be quite significant. Depending on how much you use the vehicle for personally it may be advantageous to own the vehicle personally and have your employer provide you with a reasonable per km reimbursement.
If you have any further questions please contact one of our qualified professionals.
Rob Brown, CA
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