If an employee receives an allowance that is taxable then the employee may deduct actual expenses incurred if ordinarily required to carry on duties of employment away from the employers place of business and the employer did not reimburse automobile expenses. This would require that the employee to keep detailed records of expenses and file form T2200 with his or her tax return.

If an employee expects actual expenses to exceed the car allowance, he or she should consider including the otherwise non-taxable allowance in income and deducting related expenses.

If the employer is registered for GST then an input tax credit of 5/105^ths of the non-taxable allowance may be claimed.

Employer Supplied Vehicles
Tax considerations for employer owned vehicles are more complex for both income tax and GST purposes.

If the employer is incorporated and the vehicle is used primarily for business use an input tax credit equal to the GST paid on the purchase price may be claimed.

If the employer is a sole proprietor or partnership an immediate GST input tax credit may only be claimed only if the vehicle is used exclusively for business purposes. If the vehicle is driven for both personal and business use then the input tax credit is based on 7/107^ths of the Capital Cost Allowance deductible for tax purposes.

Where an employer supplies a company vehicle to an employee a taxable benefit accrues to the employee – there are 3 components to this taxable benefit:

1. Standby fee equal to 2% x cost of vehicle (less GST&PST) x (number of days in year car available divided by 30) or 2/3 of the lease payment.
2. If the employer pays the operating costs for the vehicle the employee incurs a taxable benefit equal to 22¢ per km of personal use.
3. Both the standby fee and operating benefit are subject to GST. GST must either be collected by the employer or added to the taxable benefit.

A reduced standby fee may apply if more than 50% of the vehicle’s use is employment related and personal use is less than 1,667 km per month. In any case, a detailed log must be maintained.

For more information or to arrange an initial meeting please call (613) 727-3845 or e-mail: info@robertson-sharpe.com