pwc tax guide car expenses benefits 2014-02-10

8/10/2019 Pwc Tax Guide Car Expenses Benefits 2014-02-10

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Car expensesand benefits

A tax guide

Guides drivers andbusiness managersthrough the maze ofCanadian tax rulesfor car expensesand benefits.

2014

www.pwc.com/ca/carexpenses


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No part of this booklet may be reproduced without permission from PwC.

This booklet is published with the understanding that PwC is not thereby engaged in rendering accounting, legal or other professional service or advice.The comments included in this booklet are not intended to constitute professional advice, nor should they be relied upon to replace professional advice.

Rates and information may change as a result of legislation or regulations issued after January 31, 2014.

Tax News Network (TNN) provides subscribers with Canadian and international information, insight and analysis to support well-informed tax andbusiness decisions. Try it today atwww.ca.taxnews.com.

Cette brochure est galement disponible en franais.

PricewaterhouseCoopers LLP (PwC) website:www.pwc.com/ca.


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iCar expenses and benefits A taxguide

About this bookletWhen employers provide automobiles to employees to help them perform their employment duties, or insteadgive allowances or expense reimbursements, the tax implications can be remarkably complex.

To help, this booklet provides a general outline and analysis of the relevant tax rules as they stood onJanuary 31, 2014. It also addresses the tax consequences that arise when an automobile is supplied to ashareholder or partner or when a self-employed person uses an automobile for business.

Company automobiles, expense allowances and reimbursements may increase productivity, provide jobsatisfaction and improve the benet packagethings that both employees and employers care about.

Tax authorities have something else in mind: ensuring that employees do not receive personal benets tax-free,when salary, bonus and other forms of compensation would give rise to income tax. The result is an intricate

set of rules that levy tax on any personal use of an employer-supplied automobile and on some car allowances.The rules also permit employees to claim certain deductions if they use their own vehicles in performing theiremployment duties.

Tax law in Canada is complicated and ever-changing, affected by frequent legislative changes, court decisionsand the administrative practices of the tax authorities. This booklet is not a substitute for professional advice,

which you should seek when you are considering important actions. Nevertheless, it will answer many questionsand help you understand the tax implications of employer- and employee-provided automobiles.

Employee logAn employee log (paper and electronic) is available atwww.pwc.com/ca/carexpensesto record informationthat supports motor vehicle expenses and taxable benet calculations.

For help

For assistance with this complex subject, contact your PwC advisor or any of the individuals listed on page 25.


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Car expenses and benefits A taxguideii

Key developments2014 prescribed rates for automobilesThe Department of Finance has announced that the 2014 prescribed rates for automobiles will remain at their 2013 levels.

The 2014 prescribed rates follow, along with references to the pages that provide more information about those rates.

2014 Prescribed rates Pages

Deductionlimits

Owned cars

Maximum monthly interest deduction $3002,17Maximum capital cost on which capital cost

allowance (CCA) may be claimed $30,000+ GST/HST & PST on $30,000

Leased cars

Thresholds used todetermine the maximumdeduction for leasepayments

Lease cost limit

2,16,17

Monthly lease limit$800

+ GST/HST & PST on $800

Manufacturers list

price limit

$35,294

+ GST/HST & PST on $35,294Automobileallowances

Per-kilometre allowance Same limits as tax exempt allowances, below

11

Taxablebenefits

Tax-exemptallowances

Kilometres driven in theYukon, NWT or Nunavut

First 5,000 58

Each additional 52

Kilometres driven in allother locations

First 5,000 54

Each additional 48

Operatingcost benefit

Persons employed principally in selling orleasing automobiles

24 5,18

All other employees 27

Manitoba PST increaseAn increase in Manitobas provincial sales tax (PST) rate from 7% to 8% on July 1, 2013, increases the automobile

deduction limits for passenger vehicles purchased or leased in Manitoba after June 30, 2013. This is reected in

Appendix C.

Nova Scotia HST decreasesNova Scotia is expected to reduce its harmonized sales tax (HST) rate from 15% to 14% on July 1, 2014, and to 13%

on July 1, 2015 (i.e. the provincial portion of the HST will decrease from 10% to 9% and to 8%, respectively).

These changes will decrease:

the automobile deduction limits for passenger vehicles purchased or leased in Nova Scotia after June 30, 2014

the HST and input tax credit (ITC) rate factors

Appendices Fand Hdiscuss how Nova Scotias HST and ITC rate factors affect the tax rules for employer-supplied

automobiles and automobiles of self-employed individuals, respectively.

Quebec QST changesStarting January 1, 2014, large businesses can no longer use the simplied factor method (5%) to calculate input tax

refunds (ITRs) in respect of expense reimbursements and allowances paid to employees. Appendices Gand Hdiscuss

how the QST and ITR rate factors affect Quebecs tax rules for employer-supplied automobiles and automobiles of

self-employed individuals, respectively.


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iiiCar expenses and benefits A taxguide

Contents

1. Should employees get company cars?.....................................1

2. Employer-supplied automobiles.............................................1

Employer implications .....................................................................1

Employee implications .....................................................................3

Planning techniques for employers ..................................................6

Planning techniques for employees..................................................7

Withholdings ...................................................................................7

Record keeping ................................................................................7

Important dates ...............................................................................8

3. Employee-supplied automobiles.............................................9

Employee deductions .......................................................................9

Reimbursements and allowances...................................................10

Employer deductions .....................................................................12

Planning techniques for employers ................................................13

Planning techniques for employees................................................13

Record keeping.............................................................................. 14

4. Shareholders and partners................................................... 14

5. Self-employed individuals....................................................15

Appendices ..................................................................................15

A Motor vehicle, automobile and passenger vehicle..........................15

B Deduction for lease costs ................................................................16

C Automobile deduction limits..........................................................17

D Taxable benet from an employer-supplied automobile.................17

E Personal useWhat counts?..........................................................18

F Employer-supplied automobilesGST/HST.................................19

G Employer-supplied automobilesQST..........................................23

H Self-employed individualsGST/HST and QST............................24

PwC contacts ..............................................................................25

Employee logPaper and electronic

To go to a topic, click on a title.

Attached as separate files
http://pwc-log-car-expenses-benefits-2014-02-10.pdf/http://pwc-log-car-expenses-benefits-2014-02-10.pdf/


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Car expenses and benefits A taxguide1

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1. Should employees get company cars?Should an employer provide company cars to employees, orinstead pay them car allowances or expense reimbursementsfor using their own cars? Or neither? These decisions canbe difcult, in part because the tax aspects are surprisinglyintricate.

Making the best choice requires consideration of the objectivesof both the employer and the employee. These may coincide,in that the smallest possible taxable benet, coupled with theleast amount of record keeping, is a common goal. However,some objectives tend to conict, such as maximizing theactual benet to the employee and minimizing the employerscost. A compromise may be required.

Factors that affect the tax outcome include: the purchase price or lease cost of the car the tax classication of the vehicle (e.g. as an automobile

or otherwise) expected proportions of business and personal use expected operating costs the portion of operating costs to be paid by the employer the corporate income tax rate the employees marginal income tax rate

Non-tax factors must also be considered, some of which maybe specic to a particular business or industry. For example: Do competitors get a hiring advantage by providing

company cars? Does displaying logos on company vehicles have

promotional value? Are the cost and administrative demands of acquiring,

maintaining and keeping records for a eet of companycars worthwhile?

Because analyzing the alternatives is complex, professionaladvice is required.

2. Employer-supplied automobilesEmployer implicationsFor many businesses, automobiles are a necessity. As a result,costs of supplying and operating automobiles are legitimatebusiness expenses. However, a car is almost always usedpersonally, even if just for transportation to and from the

workplace.

For tax purposes, having appropriate ways to distinguishlegitimate business expense from personal benet is importantTo this end, the federal government has established a set ofrules, which are discussed in this booklet.

Operating expenses

Employers can deduct reasonable costs of operating vehiclessupplied to employees (whether the vehicles are leased orowned). Operating expenses must be distinguished fromcapital costs. Examples of both are in Table 1.

Table 1 Operating expenses vs. capital costs

Operating expenses Capital costs

Gas1

Oil Maintenance Minor repairs (net of

insurance recoveries) Licence and registration fees Insurance

Capital cost allowance (CCA) Interest Leasing costs Major repairs (net of

insurance recoveries)

1. Only the portion not refunded as a gasoline tax rebate may be deducted.

Capital costsAn employer that purchases or leases automobiles for use byemployees can claim tax deductions related to the capitalcosts of the vehicles. Deductions are limited for passenger

vehicles (seeAppendix A). These limitations are intended torestrict deductions for so-called luxury vehicles. Capital costsare discussed below, rst for cars the company owns, then forcars the company leases.

Company-owned carsIf a company has purchased the vehicle, it is eligible to claimcapital cost allowance (CCA) and related interest expenseor other borrowing charges, subject to the following special

rules and limitations.


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2Car expenses and benefits A taxguide

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Capital cost allowance (CCA)Each passenger vehicle that costs more than a prescribedamount must be included in its own CCA class 10.1. For

vehicles purchased in 2014, the prescribed amount is $30,000plus federal goods and services tax (GST) and provincial salestax (PST), or harmonized sales tax (HST) on $30,000.

The amount added to each class 10.1 is limited to theprescribed amount. Vehicles not included in class 10.1 areincluded in class 10. Classes 10.1 and 10 are both depreciablefor tax purposes at the CCA rate of 30%, on a decliningbalance basis. In the year a vehicle is acquired, only half ofthe normal CCA (i.e. 15%) may be claimed.

For passenger vehicles included in class 10.1, no recapture ofCCA or terminal loss will arise when the car is sold. However,

in the year a class 10.1 automobile is sold, the employer mayclaim CCA at a 15% rate, provided the employer owned the

vehicle at the end of the previous year.

Interest deductionThe deduction for interest on money borrowed to purchase apassenger vehicle is limited. For vehicles purchased in 2014,the maximum deduction is $300 per 30-day period during

which the interest was paid or payable.

The rules for company-owned passenger vehicles aresummarized in Table 2, below.

Table 2 CCA rules for company-owned cars

Passenger vehicles that cost morethan prescribed amount

Other passengervehicles

CCA class Class 10.1 Class 10

Maximum costadded to CCAclass

Prescribed amount: for vehiclespurchased in 2014, $30,000

+ GST/HST & PST on $30,0001

Purchase price+ GST/HST & PST+ improvements1

Maximum CCArate

15% in year acquired; otherwise 30%

15% in year of disposal N/A

Recapture orterminal loss?

None Possible

Maximuminterestdeduction

Interest limit: for vehicles purchased in 2014,$300 per 30-day period ($3,600 for a full year) 2

1. Less input tax credits or rebates received.2. In practice, CRA Form T2125, Statement of Business or Professional

Activities, determines the interest limit as $10 per day (i.e. in 2014, $3,650for the full year).

Prescribed lease cost limit

Company-leased carsFor leased automobiles, the deduction of the lease paymentsis generally limited to the least of: actual lease payments incurred or paid in the year (with

insurance, maintenance and taxes considered part of theactual lease payments only if they are included in thelease)

prescribed monthly based lease limit (for leases enteredinto in 2014, $800 plus GST/HST and PST) multipliedby 12 (when the car is available to the employee for a full

year) annual lease limit, calculated as:

The actual formula limitations are highly complex, takinginto account the implications of refundable deposits,reimbursements receivable by the taxpayer, and the factthat the prescribed monthly lease limit is cumulative (i.e.

when the deduction is less than this limit, the shortfal l maybe claimed in a subsequent year). Further complicationsinvolve the issue of whether payments constitute actuallease charges.Appendix Bprovides additional details of

the calculations.

The limitations for company-owned and company-leasedcars have changed over the years.Appendix Cprovides anhistorical summary. To optimize the deduction for leasepayments, get professional advice.

GST/HST and QSTEmployers who purchase or lease cars for their employeesmay be eligible to claim: input tax credits in respect of GST/HST paid input tax refunds in respect of QST (Quebec sales

tax) paid

SeeAppendices Fand G, respectively, for details.

Actual lease payments incurred orpaid in the year

For leases entered into in 2014,$35,294 + GST/HST and PSTon $35,294

For leases entered into in 2014,$30,000 + GST/HST and PSTon $30,000

85% x greater of: prescribed limit manufacturers list price

x


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Employee implicationsWhen an automobile is provided to an employee or a personrelated to the employee, the employee usually will beconsidered to have received two benets: standby charge beneft(which applies when the

employee has access to the car for personal use) operating cost beneft(which applies when the

employer pays operating costs that relate topersonal use)

The employer is required to compute both, and to report theaggregate to the employee and to the income tax authorities.In most cases, the employer must also remit GST/HST inrespect of these benets (seeAppendix F). As discussed inAppendix G, Quebec employers may also be required toremit QST.

The worksheets inAppendix Dillustrate how the taxablebenet for employer-supplied automobiles is calculated. Amore extensive discussion follows.Standby charge beneftThe standby charge must be computed whenever, by virtue ofan employees employment, an automobile is made availablefor the personal use of: the employee, or a person related to the employee

In general, when an employee has access to an employer-provided automobile for a full calendar year, the standbycharge is computed as follows:

Company-owned automobile Company-leased automobile

24% 2/3

x x

Original cost Annual lease cost

The computation is more complicated if the employee: does not have access to the car for the full calendar year can reduce the standby charge because of low personal

use of the vehicle, or reimburses the employer for use of the car

The computation of the standby charge in these circumstancesis illustrated in the following diagram.

Table 3 The standby charge calculation

Company-owned automobile Company-leased automobile

2% 2/3

x x

Original cost Monthly lease cost

x x

Number of months in the year the car was available 1

x

Reduction for low personal use

=

Standby charge before reimbursements

Reimbursements to employer2

=

Standby charge

People employed in selling or leasing automobilesIf the employee is employed principally in selling or leasingautomobiles, the employer has the option of basing thestandby charge benet on 1.5% multiplied by the greater of: the average cost of new automobiles the average cost of all automobilesacquired during the year for sale or lease by the employer

Original costThe standby charge is based on the full capital cost of theautomobile, and is not affected by the maximum for CCApurposes (discussed above). The capital cost includes: the original cost of the car, including GST/HST and PST the cost of capital improvements made to the car after it

was purchased

However, for this purpose, the cost of radio receiving ortransmission equipment required for business use is notconsidered part of the automobiles cost.

1. To determine the number of months of availability for the standby chargecalculation, divide the number of days the car was made available to theemployee by 30 and round to the nearest whole number (with 0.5 roundeddown).

2. The payment must be made by December 31.


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Lease costThe standby charge is based on the full lease cost of theautomobile, and is not affected by the limit on deductiblelease payments (discussed above). The entire amountof the lease payment (except for the portion stated to befor insurance against loss, damage or liability) is used tocalculate the amount of the benet. For purposes of thestandby charge calculation it is irrelevant that some charges(such as for maintenance, excessive distance driven andterminal charges) could more properly be regarded asoperating costs.

According toEmployers GuideTaxable Benefts andAllowances (T4130(E) Rev. 13), lump-sum amounts paidto the lessor at the beginning or end of a lease that are notpayments to buy the automobile will affect the standby

charge. Lump-sum payments made at the beginning of a leasemust be pro-rated over the life of the lease for purposes ofcalculating the standby charge.

If lump-sum payments made at the end of the lease cannot bedetermined until the nal year of the lease, the standby chargein that year may be higher than expected. These paymentsare considered terminal charges and must be either added tothe lease costs in the nal year of the lease or pro-rated overthe term of the lease. If terminal charges are pro-rated, theemployer must amend the employees T4 slips for previous

years. Consequently, this option is available only if theemployee can stil l request an income tax adjustment for the

years in question. Furthermore, the employee must agree to it.

Lump-sum payments received from the lessor at the end ofa lease are considered terminal credits. The rules discussedabove for terminal charges also apply to terminal credits,except that terminal credits must be deducted from the leasecosts either in full at the end of the lease or pro rata over thelease term.

GST/HST and PSTFor the purposes of calculating the standby charge, the originalcost or lease cost of an automobile includes GST/HST and PST,even if the employer is exempt from paying these taxes.

What does available mean?The standby charge applies when an automobile is madeavailable for an employees personal use. Available has

common dictionary meanings, such as capable of beingused; at ones disposal; within ones reach. Therefore, mostemployer-supplied automobiles clearly give rise to a standbycharge. An automobile is generally considered available forpersonal use, except when the employee is forbidden to usethe car personally and returns it to the employers premises atthe end of the day or trip.1

Footnote 1 in Table 3on page 3 shows how to determinethe number of months of availability, for the standby chargecalculation.

No personal useThe Canada Revenue Agency (CRA) provides relief toemployees who do not actually use the automobile forpersonal driving. According toEmployers GuideTaxable

Benefts and Allowances(T4130(E) Rev. 13), in this situationa standby charge will not arise, even if the vehicle wasavailable to the employee for the entire year. This appliesas long as the kilometres driven by the employee was in thecourse of employment and the vehicle is returned to theemployers premises at the end of the work day.

Appendix Eexplains how to determine personal use.

Low personal useThe standby charge can be reduced if the followingconditions are met: the employer requires the employee to use the car to carry

out employment duties the car is driven primarily (generally, more than 50%)

for business purposes (based on distance driven) personal-use kilometres average less than 1,667 per month

When the above tests are met, the reduction factor is:

Personal kilometres/1,667

Number of months in the year the car was available 1

1. Divide the number of days the car was made available to the employee in theyear by 30, and round to the nearest whole number (with 0.5 rounded down)

For example, in the case of a car that was available for10 months and was driven for 4,000 personal kilometres, thestandby charge will be reduced to 24% of the full amount ifthe reduction for low personal use applies.

An employee who is eligible for the reduction must notifythe employer before T4s (Relev 1 for Quebec tax purposes)are prepared. The employee should keep records that verifybusiness and personal driving. Alogis provided in a separateattachment for that purpose (also see page 8). Employersshould satisfy themselves that the conditions for thereduction are met.

1. CRA Views 2011-0409221E5, Automobile standby charge, July 12, 2011,conrms the CRAs view that an employer-supplied automobile that isused substantially for personal use remains available to the employeewhen the employee voluntarily surrenders the automobile and the keys tothe employer on weekends, holidays or annual vacation. The automobileceases to be available to an employee only if the employee is required bythe employer to return both the automobile and its keys.
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Reimbursements to employerAn employees standby charge is reduced by amounts paid inthe year to the employer for the use of the automobile. Theemployee cannot deduct these amounts for tax purposes.Payments for operating costs (see the following commentary)do not reduce the standby charge.

Operating cost beneft

Basic calculationAn operating cost benefit is included in the employees incomewhen the employer pays operating costs that relate to personaluse of an employer-provided automobile. The calculation ofthe operating cost benefit is illustrated below.

Table 4 Operating cost beneft: basic calculation

Personal kilometres driven in the year1

x Prescribed amount (272for 2014)

= Operating cost benefit before reimbursements

Reimbursements to employer (made before February 15 of the following year)

= Operating cost benefit

1. SeeAppendix Eto determine personal kilometres driven.2. 24 for persons employed principally in selling or leasing automobiles.

Reimbursements to employerAn employees operating cost benet is reduced for paymentsmade to the employer, in respect of operating costs, beforeFebruary 15 of the following year.

The CRA commented that it will consider payments madeby employees to third parties in respect of operating costs tobe reimbursements made to the employer. As a result, thesepayments will reduce the employees operating cost benet.The employee should: retain receipts for operating costs paid to third parties, and provide a summary to his or her employer before

February 15 of the following year

Avoiding a benefitAn operating cost benefit will not arise if the employeereimburses the employer for 100% of the personal-use portionof actual operating costs.

Example

An employee uses an employer-provided automobile, with thefollowing facts for 2014:

Personal-use kilometres 10,000 km

Total kilometres 30,000 km

Employer-paid operating costs(including GST/HST & PST)

$1,000

Reimbursements to employer Nil

Results:The operating cost benefit to the employee is:10,000 km x 27per km = $2,700.

Analysis:The portion of operating costs that relate to the employeespersonal use of the automobile is:10,000 km/30,000 km x $1,000 = $333.

Observations:The employee could eliminate a $2,700 operating cost benefitby reimbursing the employer $333 before February 15 of thefollowing year. Therefore, assuming the employees marginal taxrate is 46%, the employee can save:$2,700 x 46% - $333 = $909

Operating expensesThe tax authorities consider all costs directly associated

with the operation of an automobile to be operating costs, as

opposed to capital costs. Table 1on page 1 shows examplesof operating expenses and capital costs.

Parking costsLegislation species that, for the purposes of the employeebenet rules, automobile operating expenses do not includeparking costs. Generally, parking costs are an employeebenet in addition to the operating cost benet unless: the parking is provided for business purposes, and the employee regularly has to use the automobile for

employment purposes

In addition, the CRAEmployers GuideTaxable Benefts andAllowances(T4130(E) Rev. 13) states that a benet may notarise if:

a business operates from a shopping centre or industrialpark, where parking is available to both employees andnon-employees, or

an employer provides scramble parking (i.e. there is a shortage of parking spaces, which are taken on a

rst-come, rst-served basis)


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The CRA has commented that the taxable benet for anemployer-provided parking space should not be reduced for days

when an employee is unavailable to use the spot (e.g. becausethe employee is on vacation or travelling out of town by plane).

Alternative computationAn employee who uses an automobile primarily (i.e. more than50%) for business purposes may elect to calculate the operatingcost benet as follows:

Table 5 Operating cost beneft: alternative computation

1/2 x Standby charge before reimbursements (from Table 3)

Reimbursements to employer(made before February 15 of the following year)

= Operating cost benefit

When the election is made, an employee is taxed on amaximum benefit of 36% of original cost (or 100% of the leasecost), instead of the total of the standby charge plus 27 (24for a car salesperson) for each personal kilometre driven.

To make the election, the employee must give the employerwritten notification before December 31. The employee isrequired to maintain a record of kilometres to supportthe election.

Planning techniques for employersReduce availabilityTo reduce the number of days that cars are available, theemployer can require company cars to be left on company

premises during weekends and/or when employees are awayon business trips and vacations. Employees must be requiredto return car keys to the employer at these times. The result: areduction in the standby charge.

Buy or lease less expensive vehiclesChoosing less expensive vehicles (e.g. used cars) reduces thecapital cost or the lease cost in the standby charge calculation.

Consider whether to buy or leaseThe standby charge is based on original cost (plus capitalizedrepairs) or lease payments (excluding insurance). The relativecosts for the entire period of ownership should be compared,bearing in mind both the cost to the employer and the taxablebenefit to the employee.

Finance automobile purchases with cashBorrowing money to finance a luxury automobile purchaseis less attractive than it once was, due to the interest expenselimitations. Consider financing automobile purchases out ofcash reserves and borrowing to fund working capital or topurchase other assets for which the interest deduction isnot restricted.Consider a sale-leaseback arrangementIt may be worthwhile for the employer to sell the automobileand lease it back. In the standby charge calculation, thisreplaces the original cost by lease payments.

Provide interest-free loan to employees topurchase cars

Sometimes it makes sense for employers to lend funds interestfree to help employees purchase their own cars. Instead of thestandby charge of 24% (i.e. 2% per month), the employees

will include in employment income a deemed interest benefitbased on the prescribed rate of interest on the loan (e.g. 1%for the first quarter of 2014). In addition, for employees whoare eligible to deduct automobile expenses, the businessportion of the deemed interest benefit is deductible, up to themonthly interest limit (see page 2). However, any forgivenessof the loan (or increased salary to cover loan repayments) willconstitute an additional taxable benefit.

Reduce monthly lease paymentsMonthly lease payments will be reduced if the term of thelease is extended. Consider the long-term tax consequences othis strategy to both the employer and employee.

Consider purchasing a leased vehicleIf the employee plans to drive the same luxury vehicle formore than three or four years, consider a three- to four-yearlease with payments at or below the monthly maximum leasededuction (i.e. $800 plus GST/HST and PST on $800). Whenthe lease buy-out price is near the maximum capital cost on

which CCA may be claimed (i.e. $30,000 plus GST/HST andPST on $30,000), the employer should purchase the vehicle.This maximizes both lease deductions and CCA claims onluxury vehicles.


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Planning techniques for employeesMinimize personal drivingIf personal kilometres: are less than 50% of total kilometres driven, and average under 1,667 a monthan employee can reduce the standby charge by using thereduction for low personal use (see page 4).

In addition, if personal kilometres are less than 50% of totalkilometres driven, the employees operating cost benefit canbe determined using the alternative computation (see page 6).

Employees can minimize personal driving by making simpleadjustments to their car use. For example: make business visits on the way to or from work to convert

personal kilometres to business kilometres in two-car families, use the employee-owned car exclusively

for personal purposes to maximize the percentage ofbusiness use of the employer-provided vehicle

Consider acquiring an older automobile fromthe employerBy purchasing an older automobile from the employer, anemployee will: eliminate the standby charge, and cease to have a benefit based upon the original cost

Using this approach, a benefit will arise in respect ofemployer-paid operating costs attributable to the personaluse of the employee-provided car (see page 12, Paymentfor personal expenses). However, the benef it will not bebased on the prescribed amount times the number of personalkilometres driven. Furthermore, the employee may be ableto deduct expenses related to business use of the automobile(see page 9, Motor vehicle expenses).

Consider a salary increase instead of anemployer-provided vehicleIf an employees bonuses, incentive compensation and/orcontributions to retirement plans are based on his or her basesalary, excluding taxable benefits, the employee may prefer asalary increase instead of an employer-provided vehicle.

Original cost andlease cost inrespect of eachvehicle providedto employees

This information is necessary to compute each employeesstandby charge.

Availability ofautomobile

Records regarding the number of days each employee had anautomobile available are required to determine the standbycharge.

Payments fromemployees

Reimbursements received from the employee for use and/oroperating costs must be recorded to compute the employeesstandby charge and operating cost benefit, respectively.

Operatingexpenses

It is important for employers to maintain records of operatingexpenses borne in respect of each employee. This information isrequired to determine the amount of such costs attributable topersonal use when employee reimbursements are a factor.

The employer should also maintain records supportingreductions to each employees operating cost benefit in respectof operating costs paid by the employee to third parties.

Governmentreporting

Each employer must prepare and file a T4 (Relev 1 for Quebectax purposes) for each employee, indicating the total taxablebenefit, by the last day of February of the following year.

WithholdingsGenerally, employers are required to make withholdings inrespect of the standby charge and the operating cost benet(and other non-monetary benets) from cash remunerationpaid to employees. The amounts of these benets will notbe known during the year, so withholdings should be basedon estimates.

Withholdings are required in respect of income tax andCanada Pension Plan (CPP)/Quebec Pension Plan (QPP).However, the CPP/QPP withholding requirement will notresult in additional withholdings if the employees earnings,before the standby charge, exceed the CPP/QPP maximumpensionable earnings ($52,500 in 2014).

According to the CRAEmployers Guide Taxable Beneftsand Allowances (T4130(E) Rev. 13), the standby charge andthe operating cost benets are not subject to EmploymentInsurance (EI) premiums.

Record keepingEmployers recordsEmployers should maintain records that substantiatedeductions related to vehicles, and keep track of the following:


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Logs ofkilometresdriven

A logis provided in a separate attachment.

Employees must maintain travel logs to record total kilometrestraveled and to segregate personal from business travel. Theseare required to determine eligibility for the reduced standbycharge, the operating cost benefit alternative computation andthe calculation of the basic 27 per kilometre operating benefit(24 for a car salesperson).

Quebec employees with employer-provided automobiles mustprovide their employers with logbooks (see Important datesbelow for deadlines) that record all of the following: the number of days in the year, the automobile was available

to the employee, or a person related to the employee on a daily, weekly or monthly basis, the total kilometres

driven on the days the automobile was available during theyear on a daily basis, for each trip made by the automobile in

connection with or in the course of the individuals office or

employment:

the place of departure and the place of destination the number of kilometres travelled between the two places whether the trip was made in connection with or in the

course of the individuals office or employment

Operatingexpenses

Employees who pay operating costs to third parties should:

retain receipts, and

provide a summary to their employers before February 15 ofthe following year

Notification touse alternativeoperatingcost benefitcomputation

An employee intending to use the alternative method to computethe operating cost benefit must provide written notification to hisor her employer before December 31 of the year.

Employees recordsRecord keeping Important dates

1

December 31(earlier forpracticalpurposes)

To determine if the employee is eligible for the alternativecomputation of the operating cost benefit and whether thisalternative is beneficial, the following information must beavailable before the end of December: total kilometres driven in the year breakdown of business and personal kilometres the employees operating cost benefit based on the

prescribed amount the employees standby charge (before reimbursements)

December 31

An employee electing to compute the operating cost benefitusing the alternative method must provide written notification tothe employer by December 31.

To reduce the standby charge, payments by the employee to theemployer in respect of use of the automobile must be made by

December 31.

January 10 ofthe followingyear2

For Quebec income tax purposes, Quebec employees withemployer-provided automobiles must provide their employerswith logbooks that record the number of days the automobilewas available during the year and other specified information(see Record keeping, above).

February 14 ofthe followingyear

To reduce the operating cost benefit: payments by the employee to the employer in respect of

operating costs must be made, and a summary of operating costs paid by the employee to third

parties must be provided to the employerby February 14 of the following year

February 28 ofthe following year

(February 29 forleap years)

The employer must file the T4 (Relev 1 for Quebec) reportingthe total of the standby charge and operating cost benefit (aswell as other employment income) by the last day of February of

the following year.An employee who is eligible to use the reduction for lowpersonal use to determine the standby charge must notify theemployer before the T4 (Relev 1 for Quebec) is prepared.

1. Deadlines fall ing on Saturdays, Sundays or statutory holidays may beextended to the next business day.

2. The January 10 deadline applies if the automobile was available to theemployee on December 31. In other cases, the deadline is 10 days after theautomobile was last available to the employee. Employees who do notcomply face a $200 penalty.
http://pwc-log-car-expenses-benefits-2014-02-10.pdf/http://pwc-log-car-expenses-benefits-2014-02-10.pdf/


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3. Employee-supplied automobilesEmployee deductionsIf the conditions summarized in the table below are met: employees may deduct reasonable travel expenses,

including motor vehicle expenses employees who are salespersons or contract negotiators

may deduct a wider variety of expenses

Table 6 Employee deductions

Employees in generalSalespersons andcontract managers

Conditions(all must be met to deductthe expenses noted below)

Did not claim anydeductions as a

salesperson

At least partiallyremunerated by

commissions or similar

amounts based on salesvolume

Ordinarily required to carry on the duties ofemployment away from:

the employers placeof business, or indifferent places

the employers placeof business

Did not receive a tax-free allowance with respect tothe expenses (see comments under

Allowances,page 11)

Not reimbursed for expenses

Required under the employment contract to pay theexpenses

A prescribed form (Form T2200) certified by theemployer, reporting the conditions of employment,

is completed1

Expenses that may bededucted Travel All expenses incurred toearn employment income

Maximumdeduction

Interest andCCA on auto

Not limited by income

Otherexpenses

Commision incomefor the year

1. Quebec employees must file Form TP-64.3-V with their Quebec taxreturns, in addition to completing Form T2200.

Motor vehicle expensesIf an automobile is used for both employment and personalpurposes, to determine the deductible amount, most motor

vehicle expenses are pro-rated, based on the proportion thatthe distance driven in the course of employment is of the totaldistance. When a vehicle is used frequently during workinghours for business purposes, but the distance driven is small,capital costs may be apportioned based on a combination ofdistance and time used to earn employment income. Alogforrecording business and personal driving expenses is providedin a separate attachment.

Deductible motor vehicle expenses include automobileoperating expenses and capital costs shown in Table 7. Theseare pro-rated as discussed above.

Table 7 Operating expenses vs. capital costs

1. If the vehicle is used frequently during work hours for business purposes,

but the distance driven is small, base on a combination of distance andtime used to earn employment income.

2. An adjustment is required to reect any change in regular use.3. In computing undepreciated capital cost (UCC), the full CCA must be

deducted.

Operating expenses Capital costs2

Gas1

Oil Maintenance Minor repairs (net of

insurance recoveries) Licence and registration fees Insurance

Capital cost allowance (CCA) Interest Leasing costs Major repairs (net of

insurance recoveries)

1. Only the portion not refunded as a gasoline tax rebate may be deducted.2. Subject to the same restrictions discussed previously (page 1) with

respect to employers who own passenger vehicles.

Deductible travel expenses are reported on Form T777, alongwith other deductible employment expenses. The Quebecequivalent is Form TP-59-V.

Capital cost allowanceAn employee who is entitled to claim CCA in computing trav-el expenses may calculate the deductible amount as follows:

Add to CCA class CCA deductible

Expected %of businessuse fromyear to year

VariesThe full cost of the vehicle, up tothe prescribed amount (page 2)

Based on theproportion of

business use1ofthe vehicle3

Constant

The full cost of the vehicle, up tothe prescribed amount (page 2)multiplied by the percentage ofbusiness use1of the vehicle.2

Full CCA


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Example

An employee uses an employee-provided automobile, with thefollowing facts for 2014:

Business-use kilometres 30,000 km


Operating expenses paid by employee $1,800

Capital cost allowance on vehicle1 $3,000

Interest on vehicle $2,000

Reimbursements from employer $2,600

1. The employees use of the automobile varies from year to year.

Results:

The amount of travel expenses deductible to the employee is:($1,800 + $3,000 + $2,000) x 30,000 km/40,000 km= $5,100 $2,600 = $2,500.

Expenses that are not pro-rated Accident repair expensesIf the automobile was being used in the course of employmentat the time of an accident, accident repair expenses (includingthose for property damage to others, net of insurancerecoveries) are fully deductible. Otherwise, no portion ofthose expenses is deductible.

Parking expensesParking expenses incurred to earn employment incomeare fully deductible. Generally, the cost of parking at the

employers ofce, such as monthly or daily parking, isconsidered a personal cost and cannot be deducted.

Salespersons and contract negotiatorsIndividuals who qualify for the deduction for salespersons orcontract negotiators (see page 9) have the option of deducting: travel expenses, including motor vehicle expenses, under

the rules that apply to employees in general, or all reasonable expenses incurred to earn the employment

income, (e.g. travel expenses, including motor vehicleexpenses, entertainment expenses, and supplies) exceptnon-deductible expenses (e.g. club dues)

In the latter case, total deductions (before interest and CCAon an automobile) are limited to the salespersons or contract

negotiators commission income for the year. Because of thisrestriction, a salesperson or contract negotiator may prefer toclaim travel expenses in accordance with the provisions forother employees.

GST/HST and QST rebatesEmployees may be able to claim (on an annual basis) arebate for the GST/HST or QST paid on automobile expensesdeductible in computing their employment income for taxpurposes. Page 9discusses some of the expenses that aredeductible by employees. No rebate is payable if the employeereceived a tax-free allowance in respect of the expense.

As illustrated in Table 8, the rebate may not be available,depending on the employers status.

Table 8 Eligibility for GST/HST and QST rebate

For GST/HSTpurposes

For QSTpurposes

Theemployer

A bank, trust company or otherlisted financial institution Rebate not available

Not a GST/HST or QST registrant

In the year in which a GST/HST or QST rebate is received,it must be: included in the recipients income, or if it was granted in respect of an automobile, deducted

from the balance of the CCA class

Reimbursements and allowancesFor tax purposes, a reimbursement is an amount that: the employer gives to an employee as repayment for

amounts spent on the employers business, and is substantiated by vouchers or receipts the employee

provides

An allowance is different: a periodic or other payment bythe employer to an employee, in addition to the employeessalary and wages. (Typical examples are a at monthlyallowance and a per-kilometre allowance.) Unlike areimbursement, employees are not required to account forthe use of an allowance.

Payment of a reimbursement for automobile expenses oran automobile allowance may have GST/HST and QSTimplications to the employer. SeeAppendices Fand G,respectively, for details.

ReimbursementsReimbursements are simpler than allowances, for taxpurposes. Employers can deduct reimbursements of business-

related automobile operating expenses. Employees are: not required to report reimbursements on their income

tax returns, and not entitled to deduct automobile expenses that were

reimbursed


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AllowancesThe general rule on allowances for travel and/or motorvehicle expenses is simple: to be tax-free to the employee, theallowances must be reasonable.

If an allowance for travel expenses is tax-free, the employeemay not deduct travel expenses. Similarly, if an allowancefor motor vehicle expenses is tax-free, the employee may notdeduct expenses in respect of the motor vehicle.

A motor vehicle allowance will be considered reasonable onlyif it is both: based solely on the number of kilometres driven in the

course of employment computed using a reasonable per-kilometre rate

Consequently, a flat monthly automobile allowance is notconsidered reasonable for tax purposes, and must be includedin income. Even an allowance that meets the above criteria forreasonableness will be taxable in its entirety if the employeeis reimbursed for some of the automobile expenses. However,reimbursements for supplementary business insurance,parking, or toll or ferry charges will not cause the allowance tobe taxable, if the allowance was determined without referenceto these reimbursed expenses.

According to the CRAEmployers GuideTaxable Benefitsand Allowances(T4130(E) Rev. 13), if an employee receivesa combination of f lat-rate and reasonable per-kilometreallowances, or any other personal reimbursement such as afuel card, that cover the same use for the vehicle, the total

combined allowance is taxable.

Example

An employer pays an employee both: a flat per diem rate to offset the employees fixed expenses a reasonable per-kilometre rate for each kilometre driven

Result:The total combined allowance is taxable because the flat-rate amountcompensates the employee for some of the same use as the per-kilometre allowance.

As a general rule, for allowances paid in 2014, the CRA willaccept as reasonable an allowance calculated in accordance

with the following prescribed rates:

Table 9 Prescribed rates for tax-exempt allowances

Every December, the Department of Finance normallyannounces the maximum automobile allowance rates thatemployers may deduct in the next year. The CRA uses thesame rates to assess whether motor vehicle allowances willbe tax-exempt to employees. The rates are intended to reflectthe key components of owning and operating an automobile,such as depreciation, financing and operating expenses (i.e.gas, maintenance, insurance and licence fees). Rates for 2014are in Table 9, above.

Reasonable allowance for 2014

Distancedriven

First 5,000 km 54 + 4 for each kilometre driven in theYukon, N.W.T. or NunavutEach additional km 48

Example

An employer pays an employee both: a reasonable per-kilometre amount for employment-related travel

outside the employment district a flat-rate allowance per month for travel inside the employment

district

Results:The flat-rate allowance does not compensate the employee for anyof the same use of the vehicle as the per-kilometre allowance.Therefore, the per-kilometre allowance is not included in income, butthe flat-rate allowance is taxable.

Technically, if the per-kilometre allowance is excluded from income,

the employee cannot deduct automobile expenses. However, the CRAwill permit a deduction for automobile expenses if the employee canshow that the expenses exceed both allowances and the employeeincludes both allowances in income.


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To be considered reasonable, allowances that exceed theprescribed rates must be supported by actual automobileoperating expenses. However, the facts of the particular case

will determine the reasonableness of an allowance.

In a nutshell, only reasonable allowances (i.e. neither toohigh nor too low) will be tax-free. If an allowance is consideredunreasonable, and therefore is included in the employeesincome, the employee may deduct automobile expenses if therequirements outlined in Table 6(page 9) are met.

Technically, an allowance that is unreasonably low is to beincluded in the employees income. Nevertheless, the CRAnormally permits such an allowance to be treated as tax-free.The employee, however, has the option of including theallowance in income and deducting the applicable automobileexpenses. An employee who considers an allowance to beunreasonably low should be prepared to support that position.However, an allowance for travel expenses will not beconsidered unreasonably low simply because the employeestotal expenses for business travel exceed the allowance.

Different rules may apply when travelling allowances are paidto part-time employees.AdvancesAs an administrative concession, the CRA has indicatedthat a set periodic advance based on kilometres driven foremployment purposes will not be taxable if the followingconditions are met: at the beginning of the year, the employee and the

employer agreed on the amount to be paid to the employeefor each business kilometre

the per-kilometre amount, periodic advances and theprojected annual total kilometres are reasonable

at the end of the year (or earlier, if employment ends), thetotal periodic advance is compared to the product of: the stated amount per kilometre total business kilometres traveledand the employee repays any excess or the employercovers any shortfall

Payment for personal expensesThe employees will have a corresponding taxable benet ifthe employer: pays the personal portion of motor vehicle expenses

directly, or reimburses employees for them

Such a benet could arise, for example, if employees areallowed to charge gasoline purchases to a company creditcard and are not required to repay the portion that relates topersonal use.

Similarly, if an employer reimburses an employee for thefull cost of leasing a vehicle, a taxable benet will arise,equal to the personal portion.

The calculation of the benefit is based on the extent towhich the car was used for personal purposes. This isillustrated in the following example.

Parking costsGenerally, employer-provided parking constitutes a benetto the employee unless: the parking is provided for business purposes, and the employee regularly has to use the automobile for

employment purposes

In addition, the CRAEmployers GuideTaxable Beneftsand Allowances (T4130(E) Rev. 13) states that a benet maynot arise if: a business operates from a shopping centre or industrial

park, where parking is available to both employees andnon-employees, or

an employer provides scramble parking (i.e. there is ashortage of parking spaces, which are taken on a rst-come, rst-served basis)

The CRA has commented that the taxable benet for anemployer-provided parking space should not be reduced fordays when an employee is unavailable to use the spot (e.g.

when on vacation or travelling out of town by plane).

Employer deductionsThe general rule is that employers may deduct automobileallowances only up to the prescribed rates in Table 9(page 11). This does not apply, however, if the allowance isrequired to be included in the employees income. The rulesare summarized in Table 10on the next page.

Example

Employee provides own leased vehicle with the following factsfor 2014:

Personal-use kilometres 10,000 km


Employer-paid operating costs (including GST/HST & PST) $2,000

Employee-paid lease costs reimbursed by employer $7,000

Results:The taxable benefit equals the portion of employer-paid costs relatedto the employees personal use of the automobile, i.e.($2,000 + $7,000) x 10,000 km/30,000 km = $3,000.


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Table 10 Consequences of automobile allowances toemployees and employers

Consequences to:Employee Employer

Allowances> prescribed rates Not

taxable ifreasonable

Taxableif not

reasonable

Deductible upto prescribed

rates

Fullydeductible iftaxable to the

employee

Allowance< prescribed rates1

Fully deductibleAllowance= prescribed rates

Not taxable

Allowance not basedon business km

Taxable

1. A lthough technically an allowance that is unreasonably low is taxable, the

CRA will normally allow it to be treated as tax free.

The prescribed rates are applied employee-by-employee, sothe employment kilometres of several employees cannot beaveraged.

Planning techniques for employersEmployers that pay all or a portion of their employeesautomobile expenses should consider the following strategiesso that a deduction can be claimed for the amount paid.

Table 11 Strategies for automobile expenses

Employee taxconsequences

Possiblestrategy

Pay a per-kilometre automobile allowancethat does not exceed prescribed rates

Allowance is nottaxable

If paying a per-kilometre automobileallowance that exceeds prescribed rates,take the position that the allowance isunreasonable

Allowance istaxable, but

employee candeduct expensesPay an automobile allowance that is not

based on business kilometres driven

Reimburse employees for actual automobileexpenses or pay them accountable advances

Reimbursementsand advances are

not taxable

Of course, an analysis of these strategies should take intoaccount employee preferences.

Planning techniques for employeesEmployees who use their own cars for employment purposeswill want to minimize their after-tax cost of doing so. Thefollowing planning techniques should be considered.

Minimize personal use, maximize business useIndividuals can minimize the after-tax cost of a car by makingsimple adjustments to car use. For example: make business visits on the way to or from work to convert

personal kilometres to business kilometres in two-car families, use one car for personal purposes so

that the percentage of business use of the other vehicle ismaximized

Get an interest-free or low-interest loan from

your employerIn some cases, employers may agree to make interest-free orlow-interest loans to employees, to help them purchase theirown cars. The employee includes in employment income adeemed interest benet equal to: the prescribed rate of interest on the loan (e.g. 1% for the

rst quarter of 2014), less any interest paid by the employee to the employer on or

before January 30 of the following year

If the employee is eligible to deduct automobile expenses, thebusiness portion of the deemed interest benet is deductible,up to the monthly interest limit (see page 2). However, anyforgiveness of the loan (or increased salar y to cover loanrepayments) will constitute an additional taxable benet.

Dont combine at-rate and per-kilometre allowancesReasonable per-kilometre automobile allowances aretax-free. However, if the employee receives a combinationof at-rate and reasonable per-kilometre allowances (or anyother personal reimbursement such as a fuel card) that coverthe same use for the vehicle, the total combined allowance istaxable (see page 11).

Borrow to purchase a carAn employee who is entitled to deduct expenses related tothe employment use of a car may be better off borrowing tonance the acquisition of a car and using cash to reducenon-deductible debt (e.g. a home mortgage). This can make atleast a portion of the interest deductible.


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Record keeping

Receipts forautomobileexpenses

To be deductible, automobile expenses must be reasonablein the circumstances and should be supported by receiptsand other documents (e.g. invoices, cancelled cheques,vouchers, credit card statements or agreements). Supportingdocuments need not be filed with the income tax return, butmust be retained for examination on request. A claim forautomobile expenses calculated on a cents-per-kilometrebasis is not acceptable.

Automobile log

If the automobile is used in part to earn income and in partfor personal purposes, records of total kilometres driven andkilometres to earn income should contain the date, purpose,destination and kilometres driven for each trip.

Alogthat can be used to compute deductible automobileexpenses is provided as a separate attachment. Monthlytotals should be summarized at the end of the year, anyapplicable CCA added, an allocation made between personaland employment use, and any allowances or reimbursementsmade by the employer reflected.

Income tax forms

An employee who claims automobile expenses regardingemployment must complete Part A of Form T2200, and retainit in case the CRA requests it. This form is a declaration ofemployment conditions, which must be completed and signedby the employer. The Quebec equivalent, which must be filedwith the employees Quebec tax return, is Form TP-64.3-V.

The employee must file Form T777 with his or her incometax return to support a claim for automobile expenses. TheQuebec equivalent is Form TP-59-V.

GST/HST rebate

An employee seeking a GST/HST rebate, with respect tothe GST/HST paid on expenses that are deducted fromemployment income, is required to file Form GST-370-E

Employee and Partner GST/HST Rebate Application with hisor her personal tax return. Area C of Form GST-370-E must becompleted by the employer.

QST rebateSimilarly, Quebec-based employees seeking a QST rebateare required to file Form VD-358-V Quebec Sales Tax Rebatefor Employees and Partners.

4. Shareholders and partnersWhen a corporation makes an automobile available to ashareholder or a person related to a shareholder, both astandby charge and any operating cost benet must beincluded in the shareholders income. The standby chargealso applies to partners who are entitled to use an automobileowned by the partnership. The standby charge applies eventhough the CCA deductible to the partnership is restricted tothe business portion of the automobiles capital cost.

A shareholder or partner is assumed to be an employee forthe purposes of these benet calculations, and all referencesto employees apply equally to shareholders and partners.

Partners do not appear to be subject to the operatingcost benet that applies to employees. Instead, when apartnership pays a partners automobile operating expenses,the partner includes in income an amount based on thepercentage of operating costs that relate to personal driving.The deduction of the personal portion of the operatingexpenses is disallowed to the partnership.

The CRA has commented that an allowance paid by apartnership to a partner for the use of an automobile isa distribution of partnership prots. Consequently, theallowance is not deductible to the partnership, nor is it ataxable benet to the partner. However, the partner may beable to deduct the actual automobile expenses incurred.

A corporation or partnership that supplies an automobile toa shareholder or partner is subject to the same restrictionsas employers on the deductibility of CCA, interest andlease payments. (See Capital costs, page 1). However,a corporation that makes an automobile available to ashareholder may not be able to deduct CCA, for example, ifthe shareholder is not an employee, the automobile wouldnot be used to earn business income. Similarly, a partnershipthat makes an automobile available to a partner may not beable to deduct CCA, for example, if the partners spouse (whois not an employee) uses the automobile, it would not be usedto earn business income.

The GST/HST and QST rules applicable to employers whoprovide company cars to employees generally apply when acar is provided toa shareholder. These rules are discussed

inAppendices Fand G. A partnership is not required toremit GST/HST or QST on the taxable benet arising whena partner is provided with an automobile owned by thepartnership, unless the vehicle is used exclusively in thecommercial activities of the GST/HST or QST registeredpartnership.


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5. Self-employed individualsA self-employed person who owns or leases an automobileto earn business income is eligible to deduct automobileexpenses for tax purposes. Similarly, an individual who is amember of a partnership and personally owns or leases anautomobile used in the business of the partnership may alsodeduct automobile expenses pertaining to the business, to theextent not reimbursed by the partnership.

The specic costs eligible for deduction, and the acceptablemethods of allocation between business (deductible)and personal (non-deductible) use, are the same as thosedescribed for employees who use their own automobiles toearn employment income (see page 9). Only actual operating

expenses are deductible; a claim for expenses calculated on acents-per-kilometre basis is not permitted.

Except for Quebec, self-employed individuals can use anautomobile logbook maintained for a sample period tosupport motor vehicle expenses if the following conditionsare met: a full logbook for a 12-month base period (starting in 2009

or later) is maintained a sample logbook for a continuous three-month period

(sample period) in each subsequent year (sample year) iscompleted

the business use in the sample logbook is within 10% of theresults for the same three-month period in the base year

the calculated annual business use1as extrapolated from thesubsequent sample log is within 10% of the base-year result

If the calculated annual business use in a subsequent yearexceeds the 10% threshold, the base year will no longer beappropriate, and the sample period logbook will be reliableonly for the three-month period that it had been maintained.

The CCA, lease payment and interest expense limitationdescribed for employers apply equally to self-employedindividuals (see page 2).

When a self-employed person owns or leases two or more cars,deductible expenses should be computed separately for each.

The GST/HST and QST implications for a self-employedperson who owns or leases an automobile for his or her

business are discussed inAppendix H.

Appendix AMotor vehicle, automobile andpassenger vehicle

Why the vehicles type mattersThe limits on capital cost allowance (CCA), interest and leasingcosts apply to passenger vehicles. Therefore, any vehicle that isnot a passenger vehicle is not subject to these limits.

The standby charge and operating cost benet apply whenan automobile is provided to an employee. Therefore, if the

vehicle provided to an employee is not an automobile, thebenet calculation will differ.

Defnitions: A snapshotFor tax purposes, three terms have distinct meanings: motor

vehicle, automobile and passenger vehicle. The followingdiagram provides a snapshot of these denitions. A moredetailed discussion follows.

Passenger vehicle

Automobiles acquired or leased afterJune 17, 1987.

Automobile

Ordinary cars, plus some vans and pick-up trucks.

Motor vehicle

If you see it on the street, it is probably a motor vehicle.

Motor vehicleA motor vehicle is designed or adapted for use on highwaysand streets.

Excluded from the denition are a trolley bus and any vehicleoperated exclusively on rails.

AutomobileAn automobile is a motor vehicle that: is designed or adapted to carry passengers, and seats at most nine people, including the driver

1. Calculated annual business use =

Annual business use % in base year xSample period business use % in sample year

Sample period business use % in base year


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The denition of automobile excludes: an ambulance, a taxi, bus or hearse a pick-up truck, van or similar vehicle that: seats no more than three people, including the driver,

and, in the taxation year acquired, was used more than50% to transport goods or equipment in the courseof earning income, or

in the taxation year in which it was acquired was usedmore than 90% to transport goods, equipment orpassengers in the course of earning income

pick-up trucks used more than 50% to transport goods,equipment or passengers in the course of earning orproducing income at a remote or special worksite that isat least 30 kilometres from the nearest population centrehaving a population of at least 40,000 persons

clearly marked emergency-response vehicles used in

connection with, or in the course of, an individuals ofceor employment with a re department or the police1

clearly marked emergency medical response vehicles usedin connection with, or in the course of, an individualsofce or employment with an emergency medicalresponse or ambulance service, to carry emergencymedical equipment together with one or more emergencymedical attendants or paramedics

except for the purposes of determining the taxablebenets associated with vehicles, a motor vehicle:

acquired for sale, rental or lease in the course ofcarrying on a motor vehicle sales, rental or leasingbusiness, or

used to transport passengers in a funeral business

Passenger vehicleApassenger vehicleis an automobile that was: acquired after June 17, 1987, unless acquired under the

terms of a written agreement entered into beforeJune 18, 1987, or

leased under a lease entered into, extended or renewedafter June 17, 1987

1. For Quebec purposes, the denition of automobile excludes police andre emergency vehicles only if:

the employer provides a written directive limiting the personal use ofthe vehicle and specifying that the vehicle must be returned duringextended absences, and

the vehicle is clearly marked or has special equipment enabling a rapidresponse to events involving public security

Appendix BDeduction for lease costs

Sample worksheetfor passenger vehiclesleased during 2014The annual deduction for lease costs is limited to the least ofthe following three amounts:

Actual lease payments paid or payable in the year:

Amount of payments $

Prescribed monthly based limit, calculated as:

$ 8001

+ GST/HST & PST on $800

1

$Subtotal $

x Number of days from the start to the end oflease (to end of year, if earlier)

Subtotal $

30 = $

Amounts deducted in previous years in respect of the lease $

Interest at the prescribed rate that would be earned onrefundable lease amounts over $1,000

$

Reimbursements that became receivable by the year end onthe lease

$

= Prescribed monthly based limit $

Annual lease limit, calculated as:

$30,0001

+ GST/HST & PST on $30,0001 $Subtotal = $ A

$35,2941

+ GST/HST & PST on $35,2941

$

= Subtotal = B

Manufacturers list price (MLP) $

Greater of MLPand B $ C

A C = $

x Actual lease payments paid or payable in the year $

Subtotal $

0.85 = $

Interest at the prescribed rate that would be earned ondeposits over $1,000

$

Reimbursements that became receivable by the year end onthe lease

$

= Annual lease limit $

1. For leases entered into before 2014, seeAppendix Cfor the limits thatapplied.


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Appendix CAutomobile deduction limits1

Passenger vehicles

Acquired Leased

Monthlyinterestlimit

2

Max.capital

cost

Leasecostlimit

Monthlylease limit

Manu-facturerslist price

limit

Whenacquired orleased

1991 to1996

$300 $24,0003

$6503

$28,2353

1997

$250

$25,0003

$5503

$29,4123

1998/99 $26,0003

$6503

$30,5883

2000 $27,0003

$7003

$31,7653

2001 to2014

4 $300 $30,0003

$8003

$35,2943

1. The Department of Finance normally announces the limits each December forthe following year.

2. Technically, for each 30-day period during which the interest was paid orpayable.

3. Plus GST/HST and PST.4. The limits for passenger vehicles purchased or leased in 2014 are:

Max. capital cost &lease cost limit

Monthly leaselimit

Manufacturers listprice limit

Alberta $31,500 $840 $37,059

British Columbia $33,600 $896 $39,529

Manitoba

$33,900 $904 $39,882New Brunswick

Newfoundlandand Labrador

NorthwestTerritories $31,500 $840 $37,059

Nova Scotia $34,5001 $9201 $40,5881

Nunavut $31,500 $840 $37,059

Ontario $33,900 $904 $39,882

Prince EdwardIsland

$34,200 $912 $40,235

Qubec $34,493 $920 $40,579

Saskatchewan $33,000 $880 $38,823

Yukon $31,500 $840 $37,059

Appendix DTaxable benet from anemployer-supplied automobile

Sample worksheets

Standby charge calculation

Employer-owned

automobile

Cost of

automobile

$ x 2%1

$ A

Employer-leasedautomobile

Monthlylease cost

$ x 2/3 $ B

Number of days in year auto is available to employee

30

=

Round result (with 0.5 rounded down) to the nearest wholenumber if this fraction exceeds 1.0

= C

(A x C) or (B x C) $ D

Reduction for low personal use2

Personal kilometres

(1,667 x number of months auto was available)

= Reduction for low personal use E

=Standby charge before reimbursements= Dx E

$

Reimbursements to employer during the year $

= Standby charge $

1. Special rules apply if the employee is employed principally in selling orleasing automobiles.

2. The reduction for low personal use is available only if the followingconditions are met:

the employer requires the employee to use the car to carry outemployment duties

business use is more than 50% personal kilometres average less than 1,667 per month

1. After June 30, 2014, the limits are expected to be $34,200, $912 and$40,235, respectively.

For more help, refer to the CRAs Automobile Benets OnlineCalculator atwww.cra.gc.ca/autobenefts-calculator.


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Operating cost beneft

Gas and oil $

+ Repairs and maintenance $

+ Insurance, licence and registration $

+ Other operating costs $

= Total operating costs $

x Personal km/Total km

= Operating costs attributable to personal use $

Basic calculation

Personal kilometres driven during the year

x 271

= Operating cost benefit before reimbursements $

Reimbursements to employer made before February 15 of thefollowing year

$

= Operating cost benefit $

1. In 2014, 24 for automobile salespersons.

Alternative calculationAn employee may use this alternative calculation if both: the employee uses the automobile more than 50%

for business purposes the employee requests (in writing by December 31) thatthis method be used

Standby charge before reimbursements (page 17) $

x 1/2

= Operating cost benefit before reimbursements $

Reimbursements to employer made before February 15 of thefollowing year

$

= Operating cost benefit $

Reimbursements to employerIf, before February 15 of the following year, the employeereimburses his or her employer for all operating expensesattributable to personal use, no operating cost benet

will arise.

The CRA has commented that it will consider payments madeby employees to third parties in respect of operating costs tobe reimbursements made to the employer. As a result, thesepayments will reduce or eliminate the employees operatingcost benet. The employee should retain receipts for operatingcosts paid to third parties, and provide a summary to his or heremployer before February 15 of the following year.

Operating costs paid by the employer

Appendix EPersonal useWhat counts?

The standby charge benet depends on the cars availabilityfor personal use. The operating cost benet is based on thepersonal-use kilometres actually driven. Therefore, determining

what constitutes personal-use driving is important.

Personal driving is any driving by an employee, or a personrelated to the employee, that is not in the course of employmentThis includes vacation trips and any other personal driving.

As illustrated in the diagram below, trips between work andhome are considered personal use.1This is the case even if theemployer insists that the employee drive the vehicle2home.

However, if the employee stops at a customer or makes anotherbusiness stop on the way, these trips constitute business use.

The employee should keep records of the business andpersonal kilometres of an automobile for each calendar year,so that this information can be supported.

1. The Tax Court of Canadas (TCCs) decision in Tolson A. Hudson v. TheQueen(2007) contradicts the CRAs position that travel between anemployees regular place of employment and home is considered to bepersonal. The TCC ruled that automobile expenses incurred to commute toand from work were deductible because: the taxpayer was required to have his automobile available to him at

work for employment-related travel, and if not for the employers requirement, the employee would have taken a

different form of transportation to work

According to the CRAs website, the use of an automobile between workand home is not considered personal use if all of the following conditionsare met:

an employee must work at least three additional hours immediately afterthe regular hours of work

the occurrence of such overtime is occasional public transportation is not available or the physical safety of the

employee is at risk at the ti me of travel Other exceptions apply in specific situations.

2. Generally, the employment benefit for a motor vehicle that is not anautomobile (seeAppendix A) as defined in theIncome Tax Act, is basedon the rates used for tax-exempt allowances (for 2014, in most areas inCanada, 54 for the first 5,000 kilometres and 48 for each additionalkilometre). The CRA has clarified the circumstances under which a lowerrate can be used for motor vehicles (other than automobiles) that arerequired to be taken home at night. The CRA accepts that the benefit can bebased on the rate used for the operating cost benefit (for 2014, 27 for mosemployees), if al l the following conditions are met:

the employer stipulates in writing to the employee that the motor vehiclemust not be used for personal use other than commuting between homeand work and the vehicle has in fact not be used for any other personal use

the employer has bona fide business reasons for requiring the employeeto take the motor vehicle home at night

the motor vehicle is specifically designed, or suited for, the employersbusiness or trade and is essential for the performance of the employeesduties

The CRAs comments were inIncome Tax Technical News No. 40(June 11,

2009), but were previously made in its opinion letters issued in 2008.

Home

Business use

Personaluse

Business use

Workspace

Customer


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Alogfor recording business and personal kilometres andexpenses is provided in a separate attachment.

Except for Quebec, which has more stringent rules, self-employed individuals can use a logbook maintained fora sample period to support motor vehicle expenses if thefollowing conditions are met: a full logbook for a 12-month base period (starting in

2009 or later) is maintained a sample logbook for a continuous three-month period

(sample period) in each subsequent year (sample year) iscompleted

the business use in the sample logbook is within 10% ofthe results for the same three-month period in the base

year the calculated annual business use1as extrapolated from

the subsequent sample log is within 10% of the base-yearresult

If the calculated annual business use in a subsequent yearexceeds the 10% threshold, the base year will no longerbe appropriate, and the sample period logbook will onlybe reliable for the three-month period that it had beenmaintained. For the remainder of the year, the business useof the vehicle will need to be determined based on actualtravel records. The self-employed individual also has toestablish a new base year by maintaining a logbook for a new12-month period.

Appendix FEmployer-supplied automobiles

GST/HST

This Appendix provides an overview of the goods and servicetax (GST) and harmonized sales tax (HST) concerns ofemployers that supply employees or related individuals withcompany cars. Generally, these rules also apply when a car isprovided to a shareholder or a related individual. GST/HSTconcerns of employees are briefly discussed on page 10.

A partnership is not required to remit GST/HST on thetaxable benefit arising when an employee is provided with

an automobile owned by the partnership, unless the vehicleis used exclusively in the commercial actitivities of the GST/HST registered partnership.

OverviewThe GST is a 5% tax on the sale of most goods and services inCanada. The HST is a sales tax adopted by some provinces toharmonize their provincial sales tax systems with the GST. Itis administered by the CRA. For 2014, the HST rates for theprovinces that have adopted the HST follow:

HSTProvincialcomponent

GST

New Brunswick

Newfoundland and Labrador

Ontario

13% 8%

5%Nova Scotia1 15%1 10%

Prince Edward Island 14% 9%

1. Nova Scotia is expected to reduce its HST rate from 15% to 14% byJuly 1, 2014, and to 13% by July 1, 2015 (i.e. the provincial portion of theHST will decrease from 10% to 9% and to 8%, respectively).

A large business in Ontario and Prince Edward Island (i.e.having more than $10 million of taxable sales in Canada onan associated group basis during the previous fiscal year orcertain financial institutions) should refer toOntario andPrince Edward IslandGST/HSTon page 22.

Input tax creditsEmployers that purchase or lease cars for their employees

may be entitled to claim input tax credits (ITCs) in respectof GST/HST paid on the purchase or lease. As illustratedin Table 12, the amount of the ITC is related to all of thefollowing: the percentage of commercial use of the vehicle the type of registrant claiming the ITC the cost of the vehicle

1. Calculated annual business use =

Annual business use % in base year xSample period business use % in sample year

Sample period business use % in base year


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Individuals andpartnerships

Financialinstitutions

Othercorporationsand public

sector1

Use incommercialactivities

< 10% 0%

= Percent usedin commercial

activities

0%> 10% to50% See the ITC

calculation tablebelow

50% to90% 100%2 90% 100%

1. Public sector includes government bodies, non-profit organizations,charities, municipalities, schools and hospitals.

2. Special rebate rules apply for certain public sector bodies.

Table 12 ITC eligibility on the purchase of a vehicle

ITC calculation for individuals and

partnerships1(see Table 12)

GST

Alberta

5/105 x

CCA x% used in commercialactivities

British Columbia

Manitoba

Northwest Territories

Nunavut

Prince Edward Island

Quebec

Saskatchewan

Yukon

HST2

New Brunswick13/113 xNewfoundland

and Labrador

Nova Scotia 15/1153 x

Ontario 13/113 x

Prince Edward Island 14/114 x

For passenger vehicles acquired or leased in 2014, themaximum value on which an ITC may be claimed is: the prescribed amount for CCA purposes, excluding

GST/ HST and PST (i.e. $30,000), or the monthly lease limit, excluding GST/HST and PST

(i.e. $800)

SeeAppendix Cfor the limits that apply for vehicles purchasedor leased before 2014.

1. No ITC is available if a standby charge is included in an employees incomeunder theIncome Tax Actand the vehicle is used less than 90% in commercialactivities.

2. In special situations (e.g. if the vehicle was purchased from a registrant in anon-HST province or territory and then brought into the HST province), withrespect to the ITC claim the HST rate factor may be reduced to:

8/108 for New Brunswick, Newfoundland and Labrador and Ontario 10/110 for Nova Scotia before July 1, 2014 (expected to be 9/109 after

June 30, 2014) 9/109 for Prince Edward Island

In these situations, the individual registrant must pay the provincialcomponent: 8% in New Brunswick, Newfoundland and Labrador andOntario; 10% in Nova Scotia before July 1, 2014 (expected to be 9% afterJune 30, 2014); and 9% in Prince Edward Island of the HST and then claimthe appropriate ITC. Other HST rate factors apply if the vehicle is purchasedin an HST province and brought into another HST province.

3. For Nova Scotia, the ITC calculation is expected to be 14/114 afterJune 30, 2014.

1. The example assumes there is no reduction in the standby charge for lowpersonal use.

2. The employer must remit this amount with the GST/HST return for the periocovering February 28, 2015. If the benet is provided to a shareholder, thedeadline is the last day of the corporations taxation year.

ExampleOn January 1, 2014, an employee in Manitoba is providedwith an employer-leased automobile for one year with thefollowing monthly costs.

Lease cost $700

GST (5%) $ 35

PST (8%) $ 56 91

Total monthly lease costs $791

Results:

Maximum ITC claimable by employer:

$700 x 5% = $35/month or $420/yearEmployers GST liability:

4/104 x standby charge before reimbursements14/104 x ($791 x 12 x 2/3) = $2432

GST/HST to be remitted by employer1(standby charge)

GST

Alberta

4/104 x

Standby chargebenefit beforereimbursements1(seeTable 3onpage 3)

Brit

pwc tax guide car expenses benefits 2014-02-10

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