It’s sometimes said that our society has a love affair with the car. Personally I don’t feel any emotional attachment to those lug nuts, but when it comes to getting to, from and around my work activities, I’m as committed as the next commuter (like it or not).
The car is so prevalent that our tax system keeps an active eye on it, to make sure that employers don’t use transportation perks as a back-door way to provide employee benefits. While the rules have been in place a very long time, technological developments – specifically the entry of electric cars into mainstream usage – can lead to uncertainty as to what is exposed to tax, and how to calculate it.
These challenges were brought before the Canada Revenue Agency (CRA) at a recent financial industry conference, and the agency provided some updated guidance on its approach.
As foundation (and this barely scratches the surface of the complexities in practice), there are two main ways that an employee may have a taxable automobile benefit:
- A standby charge applies when an automobile owned or leased by an employer is made available for the employee’s personal use.
- An operating expense benefit applies when an employer provides an automobile and pays expenses such as gas, oil, maintenance and licencing related to personal use of the vehicle.
- Good recordkeeping is a must, in large part to distinguish business from personal use. If the employee reimburses the employer for personal use, that would reduce or eliminate the taxable benefit.
CRA 2017-0703881C6 – Electric vehicle taxable benefits
At an accounting organization conference, CRA was asked about its current views on electric vehicles. Unlike an internal combustion engine that can use any gas station, it is common, if not imperative, for the driver of an electric vehicle to have a charging station in the home. How does the charging station fit within the automobile benefits framework?
For starters, CRA advised that the charging station is not part of the vehicle price, nor does it fall within the operating expense benefit. It is a separate capital asset, for which capital cost allowance (CCA) may be claimed. Of course to the extent the vehicle is for personal use (though CRA did not comment further on the point), presumably there can be no CCA claim.
Beyond the automobile rules, there is the potential that the charging station would be considered a general taxable employee benefit. However, if it could be shown that the primary beneficiary of the charging station is the employer, for example if there is a clear business purpose and it relates to a condition of employment, then no benefit arises. This assumes the station is owned by the employer, and is not intended to be transferred to the employee. In the case of a shareholder-employee, there could potentially be a shareholder benefit even if the employer owns the station.
Finally there is the matter of electricity usage. Employee payments to the electric company for personal use of an employer vehicle may be used to reduce the operating expense benefit for the employee. Furthermore, an employer reimbursement for an employee’s electricity cost to charge up an employer vehicle will not be a taxable benefit. There is still the practical matter of calculating the electrical charges, for which the CRA offered no guidance.
- Taxation of automobile benefits is complex, and is likely to get even more challenging as new transportation technology develops. Keep clear and up-to-date automobile records.
- A taxable employee benefit can arise if an electric car charging station is installed in an employee’s home for an employer vehicle. This can be rebutted if the employer is the owner of the station and is the primary beneficiary of its use.
- As a final (and simpler) note for employees using their own cars, they may receive a non-taxable reimbursement from an employer for work-related mileage, though not for commuting to or from a workplace. For 2018, the “reasonable allowance” per CRA is 55 cents for the first 5,000 km driven, and 49 cents thereafter. That’s up a penny from 54 and 48 cents respectively that applied in 2017.