27 August 2012 External T.I. 2012-0438001E5 - Taxable Benefits – Employer-Provided Vehicles

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: 1. Whether a taxable benefit would arise in connection with an employee’s use of an employer-provided vehicle. 2. Is there a requirement for employees to maintain daily driving logs to support the personal and business use of a vehicle?

Position: 1. Yes. A taxable benefit will arise with respect to the personal use of an employer-provided motor vehicle. 2. No. However, some form of documentation is required.

Reasons: 1. Where the motor vehicle is an “automobile” as defined in subsection 248(1), a standby charge and operating benefit will arise under paragraphs 6(1)(e) and 6(1)(k) with respect to the personal use. Where the motor vehicle is not an “automobile”, a taxable benefit will arise under paragraph 6(1)(a) with respect to any personal use. 2. While the Act does not set out specific documentary requirements for recording the usage of a vehicle, the general rule is that an individual must retain records that would enable an objective determination of business/personal usage as noted in Guide RC4409.

XXXXXXXXXX
				2012-043800
				T. Baltkois

August 27, 2012

Dear XXXXXXXXXX:

Re: Taxable Benefits – Employer-Provided Vehicles

We are writing in response to your email dated February 22, 2012, in which you asked whether an employee’s use of an employer-provided motor vehicle would give rise to a taxable benefit under the Income Tax Act (the “Act”) for various scenarios. You have also asked whether there is a requirement that employees maintain a daily log to account for their personal and business kilometres.

In the situation described, the employer leases motor vehicles and assigns them to specific employees for them to use in the performance of employment duties. The employer pays all costs associated with these leased vehicles, including registration and insurance. Employees will often drive their personal vehicle to their regular place of employment (“RPE”) and use the employer-provided vehicle for out of town travel.

Our Comments

It is the longstanding position of the Canada Revenue Agency (“CRA”) that traveling between an employee's home and a RPE is personal. While it is always a question of fact whether a particular work location is a RPE for an employee, it is the position of the CRA that a work location may be considered to be a RPE for an employee even though the employee may only report to work at that particular location on a periodic basis (e.g., once or twice a month) during the year.

Generally, any location at or from which the employee regularly reports for work or performs the duties of employment, may be considered a RPE for the employee. It should also be noted that an employee could have more than one RPE, which could change from time to time because of the nature of the employment situation. In such instances, travel between an employee's home and his or her RPE would be considered personal travel and would give rise to a taxable benefit where the employer pays for or provides a vehicle for such travel.

However, where an employer requires an employee to proceed directly from home to a point of call other than the employee’s RPE or travel directly from one work location to another work location, such travel is considered employment-related and would not result in a taxable benefit to the employee.

Subsection 6(6) of the Act may also apply to exclude from the income of an employee, the value of certain benefits that would otherwise result from the payment of or provision for an employee’s personal or living expenses, where the employee’s duties are performed at a special work site.

A special work site, under subparagraph 6(6)(a)(i) of the Act, is a location at which an employee performs duties of a temporary nature while maintaining a self-contained domestic establishment as a principal place of residence at another location that was, throughout the period, available for the employee's occupancy (and not rented to any other person), and which, by reason of distance, the employee could not reasonably be expected to have returned to daily from the special work site. The legislation further requires that the period during which the employee was required by his or her duties to be away from his or her principal place of residence, or to be at the special work site, was not less than 36 hours. A more detailed explanation of special work sites can be found in Interpretation Bulletin IT-91R4, Employment at Special Work Sites or Remote Work Locations.

Where an employee meets the requirements for the special work site exemption under subsection 6(6) of the Act, employer-provided transportation related to an employee's travel between their principal place of residence and a special work site would not give rise to a taxable benefit by virtue of the exemption in paragraph 6(6)(b) of the Act. However, employer-provided transportation relating to an employee's travel between their temporary residence (e.g. a hotel) and a special work site that is considered a RPE for the employee would be considered personal in nature and would give rise to a taxable benefit under paragraph 6(1)(a) of the Act.

The appropriate method of calculating an employment benefit which may arise from the personal use of an employer-provided motor vehicle depends on whether a particular motor vehicle is considered to be an “automobile”, as defined in subsection 248(1) of the Act. An “automobile” does not include, among other things, vans, pick-up trucks, or similar vehicles that:

• can seat no more than the driver and two passengers, and in the year it is acquired or leased, is used primarily to transport goods or equipment in the course of business; or
• in the year it is acquired or leased, is used 90% or more of the time to transport goods, equipment, or passengers in the course of business.

The taxable benefit arising on the personal use and availability of a vehicle that is considered an “automobile” is included in the employee's income under paragraph 6(1)(e) of the Act as a “standby charge” and, where the employer pays any of the operating costs of the automobile, an “operating cost benefit” is also included in the employee's income under paragraph 6(1)(k) of the Act. Additional information on this subject is available in Interpretation Bulletin IT-63R5, Benefits, Including Standby Charge for an Automobile, from the Personal Use of a Motor Vehicle Supplied by an Employer - After 1992, Form RC18 – Calculating Automobile Benefits for 2011, and through the Automobile Benefits Online Calculator which is available on the CRA website.

If the motor vehicle provided to an employee is not an “automobile”, there is no standby charge or operating expense benefit for the availability of the motor vehicle, however, a taxable benefit under paragraph 6(1)(a) of the Act will still apply for any personal use of the motor vehicle. The amount of the benefit under paragraph 6(1)(a) of the Act would be based on a reasonable estimate of the fair market value of the benefit derived by the employee from the personal use of the motor vehicle.

The CRA generally accepts that the employment benefit arising from the personal use of a motor vehicle that is not an automobile, will be considered a reasonable estimate of the fair market value of the benefit derived, if it is calculated based on the rates prescribed in section 7306 of the Income Tax Regulations. In most areas of Canada, the prescribed rate is currently 52 cents per kilometre for the first 5,000 kilometres driven and 46 cents for each additional kilometre.

While the Act does not set out specific documentary requirements for recording the usage of a vehicle, the general rule is that an individual must retain records that would enable an objective determination of business/personal kilometres. The best evidence to support the use of a vehicle is an accurate logbook of travel maintained for the entire year, showing for each trip, the date, the destination, the reason for the trip and the distance covered. Additional information on this subject is also available in Guide RC4409, Keeping Records.

We trust these comments will be of assistance to you.

Yours truly,

Nerill Thomas-Wilkinson
Manager
for Director
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch