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| Reduced
Taxable Benefit for Company Cars |
Tax Advisory Bulletin Date:
February 2004
Re: Reduced Taxable Benefit for Company Cars
Whenever an employer provides an employee with
a car, there is a taxable benefit that must be included on
the employee’s T4. The taxable benefit is made up of
a “standby” charge and an “operating”
charge. The standby charge is computed as 2% of the original
cost of the car for each month the car is available to the
employee (or 24% of the cost of the car per annum). For leased
cars, the standby charge is 2/3 of the lease cost.
As a result of changes announced in the 2003 federal budget,
the rules that allow for a reduced standby charge have been
relaxed. For 2003 and subsequent years, the standby charge
can be reduced if both of the following conditions are met:
- the car is used for work for more than 50% of the total
kilometres driven; and
- the personal driving is less than 20,000 kilometres per
year.
If the relaxed conditions are met, the standby charge can
be reduced based on personal use divided by 20,000 kms. For
example, if you drive the car 30,000 kms for work and 15,000
kms for personal purposes, the standby charge can be reduced
to 75% of the normal charge (15,000kms/20,000).
Prior to this recent change, the standby charge could only
be reduced if the car was driven 90% or more for work and
the personal driving amounted to less than 12,000 kilometres
per year. In the example noted, the full standby charge would
have applied.
The operating charge is computed as 17 cents per kilometre
of personal use. If your work-related use of the car exceeds
50%, the operating charge can be calculated as a flat amount
equal to ½ of the standby charge. In light of the new
reduced standby charge, this method may be beneficial, particularly
if the cost of the car is low and there is a high personal
driving component (albeit less than 50%).
In all cases, it will be critical to keep dated records to
substantiate your work-related driving, including your destination
and distance.
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