If your employer provides you with a car, there are two potential taxable benefits that will be included in your income to reflect your personal use of the car. These benefits are added to your employment income and are fully taxable.
On the other hand, any employment use of the car should not be a taxable benefit for you since it does not benefit you personally.
The rules in the Income Tax Act use formulas to attempt to carve out your personal-use portion and benefit (taxable) from the employment-use portion (non-taxable). The formulas are used for the two main benefits: the standby charge, and the operating expense benefit.
For these purposes, driving from home to your employer’s place of work and back is considered personal use of your car, but driving to another location such as a client location is not.
Standby charge
The standby charge is intended to reflect the value of having a car provided to you. Since this value is difficult to ascertain on a factual case-by-case basis, there is a formula to calculate the benefit.
The formula differs depending on whether the employer owns or leases the car.
If the employer leases the car, your taxable benefit for the year will be calculated as follows.
You begin with 2/3 of the employer’s leasing costs (including GST/HST) for the time during the year that the car was provided to you (amount E in the formula).
Amount E is then reduced by a “reduction factor” but only if your work use of the car exceeds your personal use of the car for the year, and your personal kilometres driven are less than 1,667 per 30-day period in which you have the car available to you. If you meet these criteria, amount E is multiplied by the reduction factor A/B, where A is your personal kilometres driven during the year, and B is 1,667 per 30-day period. (If you have the car available for the entire year, B is 20,004.)
Example
Your employer provides you with a car for the entire year. The employer’s lease cost for the year including GST/HST is $10,000. During the year, you drive 10,000 km personal and 15,000 km employment.
Your work kilometres driven exceed your personal kilometres, and your personal kilometres are less than 20,004. Therefore, you meet the “reduction factor” criteria discussed above, and your standby charge benefit will equal E x A/B, which is (2/3 x $10,000) x 10,000/20,004 = $3,333 (approx.).
If you pay your employer any amount in the year for the use of the car (this will be rare), such amount reduces your standby charge accordingly. For example, if you paid your employer $1,000 in the year in the above example, your standby charge would be reduced to $2,333.
If your employer owns the car, the formula for the standby charge is different. In such case, the benefit is calculated using the formula 2% x C x D, where C is the employer’s cost of the car including GST/HST and D is the number of 30-day periods (rounded to the nearest whole number) in which the car is available for your use. If you meet the reduction factor criteria discussed above, the benefit is reduced by multiplying this amount by A/B as noted above.
Operating cost charge
If your employer pays any of your personal-use car expenses such as gas, maintenance, insurance or licence fees, the operating cost charge will apply.
This taxable benefit is calculated using the annual prescribed amount for each personal kilometre in the year. For 2017, the amount is 25 cents per personal kilometre (22 cents for employees employed in selling or leasing automobiles).
However, if your work kilometres for the year exceed your personal kilometers for the year, you have the option of computing your operating cost charge using one-half of your standby charge. Obviously, you would make this election if it turned out to be less than the per-kilometre amount. If you wish to use this option, you must notify your employer in writing before the end of the year.
If you repay any of the expenses in the year or by February 15 of the next year, your repayment reduces the benefit. If you repay all of the expenses, there will be no taxable benefit.
Example
During the year, your employer paid $2,000 of your personal-use car costs. However, since you drove 10,000 personal kilometres in 2017, the taxable benefit to you is 25 cents x 10,000, or $2,500 (before any repayment).
If you repay the $2,000 in the year or by February 15, 2018, there will be no taxable operating cost benefit.