Company cars are an interesting concept. For a long time they were very in vogue for executive and business owners. There is a real feeling that having a company car is a great benefit and a great way of saving on tax by getting to put your vehicle through the company. This includes everything from gas bills to maintenance.
There is a catch, however. CRA recognizes that having a company vehicle results in a corporate “perk”, or personal benefit. The fact is, if you have a company car at least part of the time it will be used for personal purposes. Not only have you not paid for your car (or have saved by putting it through your business), the company is paying all the operating costs! So, the government has found a way to calculate two different benefits that employees or business owners with company cars need to record. From here on out I’ll just use the word employee, but am including any individual who has a company car regardless of their employment status.
Stand-by Charge: This benefit is basically designed to recognize that having a company car means there is a vehicle available for the employee during the year. It’s based on the price of the vehicle, the proportion of business versus personal use, and the number of months the car was available during the year. If business use is over 50%, there is a reduction available on the charge.
Operating Cost Benefit: This benefit is designed to recognize that in most cases, employees with company cars expense 100% of their fuel, insurance, registration and other vehicle expenses through the company. This is based on a flat rate per personal km driven, though if business use is more than 50% it can be dropped to 1/2 the standby charge.
Both benefits are reduced by any reimbursements the employee makes to the company for such benefits and expenses. It’s also key to maintain a log book to ensure that you can prove what business versus personal use is.
These benefits should generally be reported on the T4, can generate GST/HST consequences and must be included in the employee’s income during the year.
Benefits such as this are less popular, because they’re non-cash benefits that result in a net cash liability to the employee. In other words, you got no extra money from your company but owe real money to the CRA for the perk. This is why automobile allowances have become more popular. An allowance is effectively a cash raise to the employee to offset not having a corporate car.
If you’re in this situation, I’d recommend getting in touch with a CPA to help you sort out the benefits – I’ve been very brief above. There are lots of exceptions and changes that can result in differences to the calculations.