When the Beatles penned the classic lyrics "Baby you can drive my car," they
probably didn't have the taxman in mind (that came up a year later...).
Employees who are provided with company-owned automobiles face a complex set of
rules that govern the amount of taxable employment benefit that must be included
in their income each year -- and requires them to document when someone else
takes the wheel.
Under the Income Tax Act, the value of the benefit enjoyed by an employee
from the personal use his or her employer-owned vehicle must be included in the
employee's income. The amount of the taxable benefit is calculated based on two
First is the operating cost benefit, which is calculated by multiplying a
prescribed amount per kilometre of personal use (currently 20 cents for 2005)
during the year. The second component is a "reasonable standby charge," which is
2% per month of the cost of the vehicle or, if the vehicle was leased by the
company, 2/3 of the lease costs for the year.
According to the Act, both amounts are calculated based on the number of days
during which the automobile is "made available" to the employee during the year.
A tax case decided late last month involved whether or not a vehicle was
specifically "made available" to an employee for personal purposes during the
James MacMillan is a vehicle fleet maintenance manager with British Columbia
Hydro. On his 2003 tax return, the Canada Revenue Agency assessed Mr. MacMillan
with both the operating cost benefit and the standby charge benefit in respect
of his company-owned Dodge Caravan minivan.
Mr. MacMillan testified that in the year in question he was required by B.C.
Hydro to have this van available to him at all times, both while he was at work
and when he was at home, so that if he was required to attend to a hydro
emergency, he could use the van to go there "immediately."
Mr. MacMillan also stated that he was not permitted to use his own personal
vehicle to travel on B.C. Hydro business, nor was he at any time permitted to
use the B.C. Hydro vehicle for his own personal travel.
Since Mr. MacMillan was required by his employer to have the vehicle
available to him at all times, he had to drive it back and forth between his
home and B.C. Hydro's maintenance garage in Surrey, B.C., a distance of 49
kilometres each way.
The CRA maintained that driving between his home and the B.C. Hydro garage
was "personal use" and thus he ought to be assessed the taxable benefits
associated with using a company-owned vehicle, as described above. This is
consistent with the CRA's longstanding administrative position that travel
between an employee's residence and his or her regular place of work is
considered to be personal travel.
The judge, however, disagreed and found that no taxable benefit should be
assessed, as "it is quite clear that the expression 'made available,' read in
its context, is only satisfied where the employee has discretion to use the
automobile for his own personal purposes.... [Mr. MacMillan] was not even free
to not use it, as it was required of him that he have it immediately available
both during the day when he was at work, and also during the time he was at home
and not at work."
While this case may be somewhat unique since it is based on the specific
facts surrounding Mr. MacMillan's employment, employees who drive company cars
may still be able to reduce their taxable benefit associated with personal-use
kilometres by relying on a CRA exception. The CRA has stated that if an employee
drives directly from home to a "point of call" other than the employer's place
of business, such as to visit a supplier or customer, or returns home from such
a point, these kilometres would generally not be considered to be of a personal