Taxable Benefits and Allowances - Employers' Guide Available electronically only - CCH Site Builder

 
Employers’ Guide
Taxable Benefits and Allowances

Available electronically only

T4130(E) Rev. 17
Is this guide for you?
Use this guide if you are an employer and you provide               Under the Canada Pension Plan and/or the Employment
benefits or allowances to your employees, including                 Insurance Act, and send it to your tax services office.
individuals who hold an office, for items such as:                  For more information on employment status, see
                                                                    Guide RC4110, Employee or Self-Employed?
■   automobiles or other motor vehicles
                                                                    A benefit or allowance can be paid to your employee in
■   board and lodging
                                                                    cash (such as a meal allowance) or provided to your
■   gifts and awards                                                employee in a manner other than cash (such as a parking
                                                                    space or a gift).
■   group term life insurance policies
                                                                    You may have to include the value of a benefit or allowance
■   interest-free or low-interest loans                             in an employee’s income, depending on the type of benefit
■   meals                                                           or allowance and the reason you give it.

■   security options                                                This guide explains your responsibilities and shows you
                                                                    how to calculate the value of taxable benefits or allowances.
■   tool reimbursement or allowance
                                                                    For information on calculating payroll deductions, go
■   transit passes                                                  to canada.ca/payroll or see Guide T4001, Employers’ Guide –
■   tuition fees                                                    Payroll Deductions and Remittances.

If you or a person working for you is not sure of the               For information on filing an information return, go
worker’s employment status, either one of you can request           to canada.ca/taxes-slips or see the following guides:
a ruling to determine the status. If you are a business             ■   RC4120, Employers’ Guide – Filing the T4 Slip and Summary
owner, you can use the “Request a CPP/EI ruling” service
in My Business Account. For more information, go                    ■   RC4157, Deducting Income Tax on Pension and Other
to canada.ca/my-cra-business-account. You can also use                  Income, and Filing the T4A Slip and Summary
Form CPT1, Request for a Ruling as to the Status of a Worker

Our publications and personalized correspondence are
available in braille, large print, e-text, or MP3 for those
who have a visual impairment. Find more information
at canada.ca/cra-multiple-formats or by calling 1-800-959-5525.

La version française de ce guide est intitulée Guide de l’employeur – Avantages et allocations imposables.

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What’s new?
We list the service enhancements and major changes below, including announced income tax changes that are not yet law at
the time this guide was published. If they become law as proposed, they will be effective for 2017 or as of the dates given.
For more information about these changes, see the areas outlined in colour in this guide.

Group term life insurance policies-                             Social events
Employer paid premiums                                          Beginning in 2018, the threshold for reporting employee
The CRA established a threshold ($50) for reporting Group       benefits derived from employer-sponsored social events
Term Life Insurance premiums paid on behalf of retirees         will be increased to $150. For information on Social events
when it’s the only income reported on the T4A slip. For         policy refer to page 32.
more information, refer to page 21.
                                                                Transit passes
Home relocation loan deduction                                  As of July 1, 2017 the public transit tax credit has been
Effective January 1, 2018 and later years, the home             eliminated. For more information, see page 33.
relocation loan deduction will be eliminated. For more
information, see page 25.

Municipal officer’s expense allowance
For 2019 and later tax years, the full amount of the
non-accountable allowances paid to elected officers will be
included in their income. For more information, see
page 28.

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Table of contents
                                                                                             Page                                                                                                   Page
Chapter 1 – General information .....................................                           6     Scholarships, bursaries, tuition, and training ..............                                   19
Do you give your employee a benefit, an allowance,                                                    Scholarship and tuition fees ............................................                       19
 or an expense reimbursement? ......................................                            6   Employment insurance premium rebate ..........................                                    20
What are your responsibilities? .........................................                       6   Gifts, awards, and long-service awards ............................                               20
 Determine if the benefit is taxable .................................                          6     Rules for gifts and awards ...............................................                      20
 Calculate the value of the benefit ..................................                          6     Value....................................................................................       21
 Calculate payroll deductions ..........................................                        7     Policy for non-cash gifts and awards.............................                               21
 File an information return ...............................................                     8     Long-service awards .........................................................                   21
Employee’s allowable employment expenses .................                                      8     Awards from a manufacturer .........................................                            21
                                                                                                    Group term life insurance policies – Employer-paid
Chapter 2 – Automobile and motor vehicle benefits
                                                                                                      premiums............................................................................            21
               and allowances ..............................................                    8
                                                                                                      Calculating the benefit .....................................................                   22
Definitions .............................................................................       8
                                                                                                      Reporting the benefit ........................................................                  22
  Automobile ........................................................................           8
                                                                                                    Housing or utilities ...............................................................              22
  Employee ...........................................................................          9
                                                                                                      Housing or utilities – benefit ...........................................                      22
  Motor vehicle.....................................................................            9
                                                                                                      Housing or utilities – allowance .....................................                          22
  Personal driving (personal use) .....................................                         9
                                                                                                      Reporting the benefit ........................................................                  22
  Vehicle ................................................................................     10
                                                                                                      Clergy residence ................................................................               23
Keeping records ....................................................................           10
                                                                                                    Income maintenance plans and other insurance plans ..                                             23
Calculating automobile benefits ........................................                       10
                                                                                                      Non-group plans ...............................................................                 23
  Calculating a standby charge for automobiles you
                                                                                                      Group sickness or accident insurance plans.................                                     23
    own or lease ...................................................................           10
                                                                                                      Employee-pay-all plans ...................................................                      23
  Calculating an operating expense benefit ....................                                12
                                                                                                      Group disability benefits – insolvent insurer ...............                                   23
Benefit for motor vehicles not defined as an
                                                                                                    Loans – interest-free and low-interest ...............................                            24
  automobile .........................................................................         13
                                                                                                      Exceptions ..........................................................................           24
  Motor vehicle home at night policy ..............................                            13
                                                                                                      Loans received because of employment .......................                                    24
  Reporting automobile or motor vehicle benefits ........                                      14
                                                                                                      Loans received because of shareholdings .....................                                   25
Automobile and motor vehicle allowances .....................                                  14
                                                                                                      Home-purchase loan ........................................................                     25
  Reasonable per-kilometre allowance ............................                              14
                                                                                                      Home-relocation loans .....................................................                     25
  Per-kilometre allowance rates that we do not
                                                                                                      Forgiven loans ...................................................................              26
    consider reasonable ......................................................                 14
                                                                                                      Reporting the benefit ........................................................                  26
  Flat-rate allowance ...........................................................              14
                                                                                                      Prescribed interest rates ...................................................                   26
  Combination of flat-rate and reasonable
                                                                                                    Loyalty and other points programs ...................................                             26
    per-kilometre allowances ............................................                      15
                                                                                                    Meals .......................................................................................     26
  Reimbursement or advance for travel expenses .........                                       15
                                                                                                      Overtime meals or allowances ........................................                           26
Averaging allowances .........................................................                 15
                                                                                                      Subsidized meals ...............................................................                26
  Reducing tax deductions at source on automobile
                                                                                                    Medical expenses ..................................................................               26
    or motor vehicle allowances .......................................                        15
                                                                                                    Moving expenses and relocation benefits .........................                                 27
  Reporting automobile or motor vehicle allowances
                                                                                                      Moving expenses paid by employer that are not a
    on the T4 slip .................................................................           16
                                                                                                        taxable benefit ................................................................              27
Chapter 3 – Other benefits and allowances ...................                                  16     Moving expenses paid by employer that are a
Board and lodging................................................................              16       taxable benefit ................................................................              27
  Exceptions to the rules .....................................................                16     Non-accountable allowances...........................................                           28
Board and lodging allowances paid to players on                                                     Municipal officer’s expense allowance .............................                               28
  sports teams or members of recreation programs ......                                        16   Parking ....................................................................................      28
Board, lodging, and transportation – Special work                                                   Pooled registered pension plans (PRPP) ...........................                                29
  sites and remote work locations ....................................                         16   Power saws and tree trimmers ...........................................                          29
  Special work sites .............................................................             16   Premiums under provincial hospitalization, medical
  Remote work locations ....................................................                   17     care insurance, and certain Government of Canada
  Payroll deductions............................................................               18     plans ....................................................................................      29
Cellular phone and Internet services ................................                          18   Private health services plan premiums .............................                               29
Child care expenses..............................................................              18   Professional membership dues ...........................................                          29
Counselling services ............................................................              18   Recreational facilities and club dues .................................                           30
Disability-related employment benefits ...........................                             18   Registered retirement savings plans (RRSPs) ..................                                    30
  Payroll deductions............................................................               18     Payroll deductions ............................................................                 30
Discounts on merchandise and commissions from                                                       Security options .....................................................................            30
  personal purchases ...........................................................               18     Taxable benefit ...................................................................             31
Education benefits ................................................................            19     Cash outs ............................................................................          31
  Educational allowances for children .............................                            19     Payroll Deductions............................................................                  31
  Subsidized school services ..............................................                    19     Security options deduction – Paragraph 110(1)(d) ......                                         31

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Security options deduction for the disposition of                                                 How to calculate the amount of the GST/HST you
    shares of a Canadian-controlled private                                                           are considered to have collected.....................................                      39
    corporation – Paragraph 110(1)(d.1) ..........................                             32     Value of the benefit ...........................................................           39
Social events ..........................................................................       32     Automobile operating expense benefits........................                              39
Spouse’s or common-law partner’s travelling                                                           Benefits other than automobile operating expense
  expenses .............................................................................       32       benefits ............................................................................    39
Tax-free savings account (TFSA) .......................................                        32   When and how to report the GST/HST you are
Tickets.....................................................................................   32     considered to have collected ...........................................                   40
  Reporting the benefit .......................................................                33     Automobile benefits – standby charges, operating
Tool reimbursement or allowance .....................................                          33       expense benefit, and reimbursements .......................                              40
Transportation passes ..........................................................               33   Input tax credits (ITCs) ........................................................            41
  Airline passes for employees and retirees of an                                                     ITC restrictions ..................................................................        41
    airline company ............................................................               33   Property acquired before 1991 or from a
  Transit passes ....................................................................          33     non-registrant ....................................................................        41
  Transit passes – employees of a transit company .......                                      33
                                                                                                    Benefits chart ........................................................................      43
Travel allowance...................................................................            34
  Part-time employee ..........................................................                34   Online services .....................................................................        45
  Salesperson and clergy ....................................................                  34   Handling business taxes online ..........................................                    45
  Other employees ...............................................................              34   Sign up for online mail .........................................................            45
  Reasonable travel allowances .........................................                       34   Authorizing the withdrawal of a pre-determined
Uniforms and protective clothing .....................................                         34     amount from your bank account ....................................                         45
Chapter 4 – Housing and travel assistance benefits                                                  For more information ..........................................................              46
              paid in a prescribed zone............................                            35   What if you need help? ........................................................              46
Accommodation or utilities provided by the                                                          Addresses ...............................................................................    46
  employer ............................................................................        35     Tax services offices............................................................           46
  Places with developed rental markets ..........................                              35     Tax centres ..........................................................................     46
  Places without developed rental markets ....................                                 35   Direct deposit.........................................................................      46
  Allowable ceiling amounts .............................................                      35   Due dates ................................................................................   46
Board, lodging, and transportation at a special                                                     Cancel or waive penalty or interest ...................................                      46
  work site .............................................................................      36   Electronic mailing list ...........................................................          46
Travel assistance benefits ....................................................                36   Forms and publications .......................................................               46
  Medical travel assistance .................................................                  36   Related publications .............................................................           46
                                                                                                    Reprisal complaint ................................................................          46
Chapter 5 – Remitting the GST/HST on employee
                                                                                                    Service complaints ................................................................          46
            benefits ...........................................................               37
                                                                                                    Tax information videos ........................................................              47
Employee benefits ................................................................             38
                                                                                                    Teletypewriter (TTY) users .................................................                 47
 Employee does not pay the GST/HST on taxable
   benefits............................................................................        38
 Do you have to remit GST/HST on employee
   taxable benefits? ............................................................              38
 Situations where you are not considered to have
   collected the GST/HST ................................................                      38

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Whether or not a benefit is taxable depends on whether an
Chapter 1 – General information                                  employee or officer receives an economic advantage that
                                                                 can be measured in money, and whether that individual is
Do you give your employee a benefit,                             the primary beneficiary of the benefit.
an allowance, or an expense                                      For more information on the term primary beneficiary,
reimbursement?                                                   see paragraphs 2.14 and 2.23 to 2.25 of Income Tax
                                                                 Folio S2-F3-C2: Benefits and Allowances Received from
Your employee has received a benefit if you pay for or give
                                                                 Employment. For some common examples of taxable
something that is personal in nature:
                                                                 benefits, see Chapters 2 to 4 of this guide.
■   directly to your employee
                                                                 The benefit may be paid in cash (such as a meal allowance
■   to a person who does not deal at arm’s length with the       or reimbursement of personal cellular phone charges), or
    employee (such as the employee’s spouse, child, or           provided in a manner other than cash, such as a parking
    sibling)                                                     space or a gift certificate. For more information and
                                                                 examples, go to “Pensionable and Insurable Earnings”
A benefit is a good or service you give, or arrange for a        at canada.ca/cpp-ei-explained.
third party to give, to your employee such as free use of
property that you own. A benefit includes an allowance or        The manner in which you pay or provide the benefit to
a reimbursement of an employee’s personal expense.               your employee will affect the payroll deductions you have
                                                                 to withhold. For more information, see “Calculate payroll
An allowance or an advance is any periodic or lump-sum           deductions” on page 7.
amount that you pay to your employee on top of salary or
wages, to help the employee pay for certain anticipated
expenses without having him or her support the expenses.         Calculate the value of the benefit
An allowance or advance is:                                      Once you determine that the benefit is taxable, you need to
                                                                 calculate the value of the specific benefit.
■   usually an arbitrary amount that is predetermined
    without using the actual cost                                The value of a benefit is generally its fair market value
                                                                 (FMV). This is the price that can be obtained in an open
■   usually for a specific purpose                               market between two individuals dealing at arm’s length.
■   used as the employee chooses, since the employee does        The cost to you for the particular property, good, or service
    not provide receipts                                         may be used if it reflects the FMV of the item or service.
An allowance can be calculated based on distance, time or        You must be able to support the value if you are asked.
something else, such as a motor vehicle allowance using the
distance driven or a meal allowance using the type and
                                                                 Goods and services tax/harmonized sales tax
number of meals per day.
                                                                 (GST/HST) and provincial sales tax (PST)
A reimbursement is an amount you pay to your employee            When you calculate the value of the taxable benefit you
to repay expenses he or she incurred while carrying out the      provide to an employee, you may have to include:
duties of employment. The employee has to keep proper
records (detailed receipts) to support the expenses and give     ■   the GST/HST payable by you
them to you.                                                     ■   the PST that would have been payable if you were not
                                                                     exempt from paying the tax because of the type of
What are your responsibilities?                                      employer you are or the nature of the use of the property
                                                                     or service
If you provide benefits to your employees, you always have
to go through the same steps. If a step does not apply to        Use the “Benefits chart,” on page 43 to find out if you
you, skip it and go on to the next step:                         should include GST/HST in the value of the benefit. Some
                                                                 benefits have further information about GST/HST in the
■   determine if the benefit is taxable                          topic specific section.
■   calculate the value of the benefit                           The amount of the GST/HST you include in the value of
■   calculate payroll deductions                                 the taxable benefits is calculated on the gross amount of the
                                                                 benefits, before any other taxes and before you subtract any
■   file an information return                                   amounts the employee reimbursed you for those benefits.
    Note                                                         You do not have to include the GST/HST for:
    In this guide, “employee” includes an “individual who
    holds an office,” unless otherwise noted.                    ■   cash remuneration (such as salary, wages, and
                                                                     allowances)
Determine if the benefit is taxable                              ■   a taxable benefit that is an exempt supply or a zero-rated
Your first step is to determine whether the benefit you              supply as defined in the Excise Tax Act
provide to your employee is taxable and has to be included       For more information on exempt or zero-rated supplies, go
in his or her employment income when the benefit is              to canada.ca/gst-hst or see Guide RC4022, General
received or enjoyed.                                             Information for GST/HST Registrants.

6                                                       canada.ca/taxes
If you are a GST/HST registrant, you may have to remit the      Non-cash or near-cash benefits
GST/HST for the taxable benefits you provide to your            A non-cash (or “in kind”) benefit is the actual good, service,
employees. For more information, see “Chapter 5 –               or property that you give to your employee. This includes a
Remitting the GST/HST on employee benefits.”                    payment you make to a third party for the particular good
                                                                or service if you are responsible for the expense.
    Note
    The GST/HST rates used in this guide are based on the       A near-cash benefit is one that functions as cash, such as a
    current rates set under the Excise Tax Act and its          gift certificate or gift card, or something that can easily be
    regulations for taxable benefits provided in the 2017 tax   converted to cash, such as a security, stock, or gold nugget.
    year.                                                       For more information on near-cash benefits, see “Gifts,
                                                                awards, and long-service awards” on page 20.
Calculate payroll deductions                                    CPP – When a non-cash or near-cash benefit is taxable, it is
After you calculate the value of the benefit, including any     also pensionable. This means you have to deduct CPP
taxes that may apply, add this amount to the employee’s         contributions from the employee’s pay. It also means that
income for each pay period or when the benefit is received      you have to pay your employer’s share of CPP to the CRA.
or enjoyed. This gives you the total amount of income from
which you have to make payroll deductions. You then                 Note
withhold deductions from the employee’s total pay in the            Except for security options, if a non-cash taxable benefit
pay period in the normal manner. The deductions you                 is the only form of remuneration you provide to your
withhold, especially the employment insurance (EI)                  employee in the year, there is no remuneration from
premiums, will depend on whether the benefit you provide            which to withhold deductions. You do not have to
is cash, non-cash, or near-cash.                                    withhold CPP contributions on the amount of the
                                                                    benefit, even if the value of the benefit is pensionable.
    Note                                                            Also, you do not have to remit your share of the CPP
    If you provide your employee with a monthly taxable             amounts.
    benefit, you may include a prorated value in your
    employee’s income in each pay period in the month.              Always report the value of the non-cash benefit in box 14
                                                                    “Employment income,” and box 26 “CPP/QPP
                                                                    pensionable earnings,” of the T4 slip, even if you did not
Cash benefits
                                                                    have to deduct CPP/QPP contributions.
Cash benefits include such things as:
                                                                EI – A taxable non-cash or near-cash benefit is generally not
■   physical currency
                                                                insurable. Do not deduct EI premiums.
■   cheques
                                                                Exceptions to this rule are:
■   direct deposit
                                                                ■   the value of board and lodging an employee receives
Canada Pension Plan (CPP) – When a cash benefit is                  during a period in which you pay the employee a salary
taxable, it is also pensionable. This means you have to             in cash. For more information, see “Board and lodging,”
deduct CPP contributions from the employee’s pay. It also           on page 16; and
means that you have to pay your employer’s share of CPP
                                                                ■   employer-paid RRSP contributions when the employee
to the Canada Revenue Agency (CRA).
                                                                    can withdraw the amounts. For more information,
If the employment is not pensionable under the CPP, then            see “Registered retirement savings plans (RRSPs)” on
any taxable benefits paid in cash are not pensionable and           page 30.
CPP contributions should not be withheld. For more
                                                                Income tax – When a non-cash or near-cash benefit is
information, see “Employment, benefits, and payments
                                                                taxable, you have to deduct income tax from the
from which you do not deduct CPP contributions” in
                                                                employee’s total pay in the pay period. Except for security
Chapter 2 of Guide T4001, Employers’ Guide – Payroll
                                                                options, if a non-cash or near-cash benefit is of such a large
Deductions and Remittances.
                                                                value that withholding the income tax will cause undue
Employment insurance (EI) – When a cash benefit is              hardship, you can spread the tax you withhold over the
taxable, it is also insurable. This means you have to deduct    balance of the year. We consider undue hardship to occur if
EI premiums from your employee’s pay. It also means that        the required withholding results in your employee being
you have to pay the employer’s share of EI to the CRA.          unable to pay reasonable expenses related to basic family
                                                                needs. Basic family needs are those related to food,
If the employment is not insurable under the Employment         clothing, shelter, health, transportation, and childcare.
Insurance Act, then any taxable benefits paid in cash are not
insurable and EI premiums should not be withheld. For               Note
more information, see “Employment, benefits, and                    Except for security options, if a non-cash or near-cash
payments from which you do not deduct EI premiums” in               taxable benefit is the only form of remuneration you
Chapter 3 of Guide T4001, Employers’ Guide – Payroll                provide to your employee, there is no remuneration
Deductions and Remittances.                                         from which to withhold deductions. You do not have to
                                                                    withhold income tax on the amount of the benefit, even
Income tax – When a cash benefit is taxable, you have to            if the value of the benefit is taxable.
deduct income tax from the employee’s total pay in the pay
period.

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For more information on calculating payroll deductions, go       ■   You have a formal telework arrangement with your
to canada.ca/payroll or see Guide T4001, Employers’ Guide –          employee that allows this employee to work at home.
Payroll Deductions and Remittances.                                  Your employee pays for the expenses of this work space
                                                                     on his or her own.
Benefits chart
Use the “Benefits chart” on page 43 to find out if you           You have to fill out and sign Form T2200, Declaration of
should deduct CPP contributions and EI premiums on the           Conditions of Employment and give it to your employee so he
taxable amounts, and which codes to use to report the            or she can deduct employment expenses from his or her
taxable amounts on an employee’s T4 slip. The chart also         income. By signing the form, you are only certifying that
shows whether to include GST/HST in the value of the             the employee met the conditions of employment and had to
benefit for income tax purposes.                                 pay for the expenses under his or her employment contract.

File an information return                                       It is the employee’s responsibility to claim the expenses on
                                                                 his or her income tax and benefits return and to keep
If you are an employer, report the value of the taxable          records to support the claim.
benefit or allowance on a T4 slip in box 14, “Employment
income.” Also report the value of the taxable benefit or         For more information on allowable employment expenses,
allowance in the “Other information” area at the bottom of       see:
the employee’s slip and use code 40, unless we tell you to       ■   Guide T4044, Employment Expenses
use a different code.
                                                                 ■   Interpretation Bulletin IT-522, Vehicle, Travel and Sales
If you are a third-party payer providing taxable benefits or         Expenses of Employees
allowances to employees of another employer, report the
benefits in the “Other information” area at the bottom of        ■   Interpretation Bulletin IT-352, Employee’s Expenses,
the T4A slip. Use the code provided for the specific benefit.        Including Work Space in Home Expenses
                                                                 ■   Information Circular IC73-21, Claims for Meals and
Example                                                              Lodging Expenses of Transport Employees
If you are a third party who provides travel benefits (travel
assistance in a prescribed zone) to the employee of another
employer, report these benefits under code 028 "Other
                                                                 Chapter 2 – Automobile and
income," in the "Other information" area at the bottom of        motor vehicle benefits and
the T4A slip.
                                                                 allowances
If a benefit or allowance described in this guide is             Information on the topics discussed in this chapter can be
non-pensionable, non-insurable, and non-taxable, do not          found at:
include it in income and do not report it on an information
slip.                                                            ■   canada.ca/taxes-auto-motor-benefits

For more information on reporting benefits and allowances,       ■   IT-63, Benefits, Including Standby Charge for an Automobile,
go to canada.ca/taxes-slips or see the following guides:             from the Personal Use of a Motor Vehicle Supplied by an
                                                                     Employer – After 1992
■   RC4120, Employers’ Guide – Filing the T4 Slip and Summary
                                                                 ■   IT-522, Vehicle, Travel and Sales Expenses of Employees
■   RC4157, Deducting Income Tax on Pension and Other
    Income, and Filing the T4A Slip and Summary                  ■   canada.ca/automotor-allowances and select “Facts about
                                                                     automobile and other vehicle benefits and automobile
                                                                     allowances”
Employee’s allowable employment
expenses                                                         Definitions
Your employee may be able to claim certain employment            Read through the following definitions. They will help you
expenses on his or her income tax and benefit return if,         understand the terms and expressions we use in the
under the contract of employment, the employee had to            information that follows.
pay for the expenses in question. This contract of
employment does not have to be in writing but you and
your employee have to agree to the terms and understand
                                                                 Automobile
what is expected.                                                An automobile is a motor vehicle that is designed or
                                                                 adapted mainly to carry individuals on highways and
                                                                 streets, and has a seating capacity of not more than the
Examples                                                         driver and eight passengers.
■ You allow your employee to use his personal motor
  vehicle for business and pay him a monthly motor               If the vehicle you provide to your employee is not included
  vehicle allowance to pay for the operating expenses and        in the definition of automobile as described, see “Benefit for
  you include the allowance in the employee’s                    motor vehicles not defined as an automobile,” on page 13.
  employment income as a taxable benefit; or
                                                                 An automobile does not include:
                                                                 ■   an ambulance

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■   clearly marked police or fire emergency response               Personal driving (personal use)
    vehicles                                                       Personal driving is any driving by an employee, or a person
■   clearly marked emergency medical response vehicles that        related to the employee, for purposes not related to his or
    you use to carry emergency medical equipment and one           her employment.
    or more emergency medical attendants or paramedics             An employee may use one of your owned or leased
■   a motor vehicle you bought to use primarily (more than         vehicles for purposes other than business or, an employee
    50% of the distance driven) as a taxi, a bus used in a         may use his or her personal vehicle to carry out
    business of transporting passengers, or a hearse in a          employment duties and get an allowance for the business
    funeral business                                               use of that vehicle. Whatever the situation, if your
                                                                   employee drives your vehicle for personal reasons or you
■   a motor vehicle you bought to sell, rent, or lease in a        reimburse your employee for the personal driving of his or
    motor vehicle sales, rental, or leasing business, except for   her own vehicle, there is a taxable benefit that has to be
    benefits arising from personal use of an automobile            calculated and included in his or her income.
■   a motor vehicle (other than a hearse) you bought to use        Personal driving includes:
    in a funeral business to transport passengers, except for
    benefits arising from personal use of an automobile            ■   vacation trips
■   a van, pickup truck, or similar vehicle that:                  ■   driving to conduct personal activities
    – can seat no more than the driver and two passengers,         ■   travel between home and a regular place of employment,
      and in the year it is acquired or leased is used                 other than a point of call
      primarily to transport goods or equipment in the             ■   travel between home and a regular place of employment
      course of business                                               even if you insist the employee drive the vehicle home,
    – in the year it is acquired or leased, is used 90% or more        such as when he or she is on call
      of the distance driven to transport goods, equipment,
      or passengers in the course of business                      Regular place of employment
                                                                   A regular place of employment is any location where your
■   pickup trucks that you bought or leased in the tax year
                                                                   employee regularly reports for work or performs the duties
    that:
                                                                   of employment. In this case, “regular” means there is some
    – you used primarily to transport goods, equipment, or         degree of frequency or repetition in the employee’s
      passengers in the course of earning or producing             reporting to that particular work location in a given pay
      income                                                       period, month, or year. This “place” does not have to be an
                                                                   establishment of the employer.
    – you used at a remote work location or at a special work
      site that is at least 30 kilometres away from any            A regular place of employment may include:
      community having a population of at least 40,000
                                                                   ■   the office where your employee reports daily
    Note
                                                                   ■   several store locations that a manager visits monthly
    If the back part or trunk of a van, pickup truck, or
    similar vehicle has been permanently altered and can no        ■   a client’s premises when an employee reports there daily
    longer be used as a passenger vehicle, it is no longer             for a six month project
    considered an automobile as long as it is used primarily
                                                                   ■   a client’s premises if the employee has to attend biweekly
    for business.
                                                                       meetings there
Employee                                                           Depending on the circumstances, your employee may have
                                                                   more than one location where he or she regularly reports
While the information in this chapter relates to an
                                                                   for work. If your employee has multiple regular work
employee, it may also apply to the following taxpayers:
                                                                   locations and travels between home and several work
■   a person related to the employee                               locations during the day, only the trip from your
                                                                   employee’s home to the first work location or, the trip from
■   an individual who holds an office or person related to
                                                                   the last work location to home is personal driving. Any
    that individual
                                                                   travel by the employee between work locations is business
■   a partner or person related to the partner                     related.
■   a shareholder or person related to the shareholder             Exceptions
                                                                   An employee’s travel between home and a regular place of
Motor vehicle                                                      employment may be “business” related (and not a taxable
                                                                   benefit) if:
A motor vehicle is an automotive vehicle designed or
adapted for use on highways and streets. It does not               ■   you need to provide your employees with transportation
include a trolley bus or a vehicle designed or adapted for             from pickup points to an employment location when
use only on rails. Although an automobile is a kind of                 public and private vehicles are neither allowed nor
motor vehicle, we treat them differently for income tax                practical at the location because of security or other
purposes.                                                              reasons

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■   you need to provide transportation to your employee          receive from your employee, other than expenses relating
    who works at a special work site or a remote location. If    to the operation of the automobile, will decrease the
    so see “Board, lodging, and transportation – Special work    standby charge that has to be included in your employee’s
    sites and remote work locations,” on page 16.                income.
                                                                 The following information about personal use, availability
Point of call
                                                                 and reducing the standby charge is the same whether you
A point of call is a place the employee goes to perform his      own the automobile or lease it.
or her employment duties other than the employee’s
regular place of employment.
                                                                 Availability and personal use
We will consider the employee’s travel between his or her        An automobile is available to your employee if he or she
home to a point of call to be “business” driving (and not a      has access to or control over the vehicle. It includes any part
taxable benefit) if you need or allow the employee to travel     of a day, weekends and holidays during the calendar year.
directly from home to a point of call (such as a salesperson
                                                                 If your employee does not use your automobile for any
visiting customers, going to a client’s premises for a
                                                                 personal driving, there is no taxable benefit, even if the
meeting, or making a repair call) or to return home from
                                                                 automobile is available to your employee for the entire
that point.
                                                                 year. This applies as long as the kilometres driven by your
     Note                                                        employee were in the course of his or her employment
     It must be reasonable that the employee’s travel to the     duties and the vehicle is returned to your premises at the
     point of call be made at that time and on the way to or     end of his or her work day.
     from work. If it is unreasonable, then that distance is
     personal driving and is a taxable benefit.                  Reducing the standby charge
                                                                 Calculate the standby charge at a reduced rate if all of the
Vehicle                                                          following conditions apply:
The term “vehicle” used in this chapter includes both            ■   you require your employee to use the automobile to
automobiles and motor vehicles not defined as                        perform his or her duties
automobiles.
                                                                 ■   the employee uses the automobile more than 50% of the
                                                                     distance driven for business purposes
Keeping records
                                                                 ■   the kilometres for personal use is not more than 1,667 per
You and your employees have to keep records on the usage
                                                                     30-day period or a total of 20,004 kilometres a year
of the vehicle so that you can properly identify the business
and personal use amounts of the total kilometres driven in       Use one of the following tools to apply the reduced rate:
a calendar year by an employee or a person related to the
                                                                 ■   the Automobile Benefits Online Calculator, for 2013 and
employee. The records may contain information relating to
                                                                     subsequent years, at canada.ca/automobile-benefits-
the business destination such as the date, the name and
                                                                     calculator
address of the client, and the distance travelled between
home and the client’s place of business. For more                ■   Form RC18, Calculating Automobile Benefits
information, go to canada.ca/taxes-records.
                                                                 Automobile you own
Calculating automobile benefits                                  There are two methods to calculate the standby charge
                                                                 when you own the automobile – the simplified calculation
The benefit for an automobile you provide is generally:
                                                                 and the detailed calculation.
■   a standby charge for the year; plus
                                                                 The simplified calculation has certain conditions that the
■   an operating expense benefit for the year; minus             employee has to meet. If the conditions are not met, you
                                                                 have to use the detailed calculation. To find out which
■   any reimbursements employees make in the year for            calculation method is better for your employee, use
    benefits you otherwise include in their income for the       Form RC18, Calculating Automobile Benefits.
    standby charge or the operating expenses.
                                                                 The following information will help you fill in Form RC18
You can use the following tools to calculate the benefits:       and the Automobile Benefits Online Calculator.
■   Automobile Benefits Online Calculator                        1) Your automobile costs
    at canada.ca/automobile-benefits-calculator                  The cost of your automobile for determining the standby
■   Worksheet – You can get Form RC18, Calculating               charge is the total of the following two amounts:
    Automobile Benefits, by going to canada.ca/cra-forms-        ■   the cost of the automobile when you bought it, including
    publications or by calling 1-800-959-5525                        options, accessories, and the GST/HST and PST, but not
                                                                     including any reduction for a trade-in
Calculating a standby charge for automobiles
                                                                 ■   the cost of additions (including the GST/HST and PST)
you own or lease                                                     you made to the automobile after you bought it (that you
The standby charge is for the benefit your employee gets             add to the capital cost of the automobile to calculate the
when your owned or leased automobile is made available               deduction for depreciation)
for his or her personal use. Any reimbursements you

10                                                      canada.ca/taxes
Note                                                        ■   any associated costs, such as maintenance contracts,
    Where the automobile was purchased from a non-arm’s             excess mileage charges, terminal charges less terminal
    length person, the cost is generally equal to the fair          credits, and the GST/HST and PST that you pay to the
    market value when you bought it, including options and          lessor under the leasing contract
    GST/HST or PST.
                                                                    Note
Specialized equipment you add to the automobile to meet             Leasing costs do not include liability and collision
the requirements of a disabled person or for employment             insurance costs.
(such as cellular phones, two-way radios, heavy-duty
                                                                2) 30 day periods
suspension, and power winches) are not considered to be
                                                                When you divide the total days available by 30, round off
part of the automobile’s cost for purposes of calculating the
                                                                the result to the nearest whole number if it is more than
standby charge.
                                                                one.
If you operate a fleet or pool of automobiles, go to the
                                                                    Examples:
heading “Fleet operations” below.
                                                                    20 days ÷ 30 = 0.67 (do not round off)
2) 30 day periods
                                                                    130 days ÷ 30 = 4.33 (round to 4)
When you divide the total days available by 30, round off
the result to the nearest whole number if it is more than           135 days ÷ 30 = 4.50 (round to 4)
one.
                                                                    140 days ÷ 30 = 4.67 (round to 5)
    Examples:
    20 days ÷ 30 = 0.67 (do not round off)                      3) Personal kilometres
                                                                See the section on “Personal driving (personal use)” on
    130 days ÷ 30 = 4.33 (round to 4)                           page 9.
    135 days ÷ 30 = 4.50 (round to 4)                           4) Reimbursements
                                                                A reimbursement is an amount you receive from your
    140 days ÷ 30 = 4.67 (round to 5)
                                                                employee to repay you for some of your automobile costs.
3) Personal kilometres                                          The amount the employee reimburses you may be used to
See the section on “Personal driving (personal use)” on         reduce the employee’s taxable benefit.
page 9.
                                                                Lump-sum lease payments
4) Reimbursements
A reimbursement is an amount you receive from your              Lump-sum amounts you pay the lessor at the beginning or
employee to repay you for some of your automobile costs.        end of a lease that are not a payment to buy the automobile
The amount the employee reimburses you may be used to           will affect the standby charge for the automobile.
reduce the employee’s taxable benefit.                          Prorate the lump-sum payment you make at the beginning
                                                                of a lease over the life of the lease and add it to the leasing
Fleet operations                                                cost.
You may operate a fleet or pool of automobiles from which
                                                                If you make a lump sum payment at the end of a lease, we
an employee uses several automobiles during the year. If
                                                                consider it to be a terminal charge. This means your lease
you assign an automobile to an employee from a fleet or
                                                                costs should have been higher and the standby charge for
pool on a long-term or exclusive basis, the cost of the
                                                                the automobile has been understated.
automobile you have assigned to the employee should be
used when you calculate his or her standby charge.              In this situation, you can use one of the following methods:
However, if the fleet is mostly the same or if you group it     ■   add the terminal charge to the lease costs in the year you
into a few similar groups, you can calculate the standby            end the lease
charge based on the average cost of the group from which
you provide the automobile. You and your employee have          ■   prorate the payment over the term of the lease and
to agree to this.                                                   amend the T4 or T4A slip of the employee who used the
                                                                    automobile, as long as he or she agrees and can still ask
For more information on grouping automobiles by average             for an income tax adjustment for the years in question
cost, see Interpretation Bulletin IT-63, Benefits, Including
Standby Charge for an Automobile, from the Personal Use of a    Each employee can then write to any tax services office or
Motor Vehicle Supplied by an Employer – After 1992.             tax centre and ask us to adjust his or her income tax and
                                                                benefit returns for those years.
Automobile you lease                                            A lump sum payment you receive from the lessor at the
You must use the detailed calculation to calculate the          end of a lease is considered to be a terminal credit. When
standby charge for employer leased automobiles. The             this happens, the standby charge for the automobile has
following information will help you fill in Form RC18 and       been overstated since the lease costs should have been
the Automobile Benefits Online Calculator.                      lower. In this situation, you can use one of the following
                                                                methods:
1) Your leasing costs
Leasing costs of your automobile used in calculating the        ■   deduct the terminal credit from the lease costs in the year
standby charge include:                                             you end the lease
■   the rental cost for the automobile

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■   amend the T4 or T4A slip of the employee who used the         Optional calculation
    automobile and provide a letter explaining the reduction,     You can choose this method to calculate the automobile’s
    as long as the employee agrees and can still ask for an       operating expense benefit if all of the following conditions
    income tax adjustment for the years in question               apply:
Each employee can then write to any tax services office or        ■   You include a standby charge in your employee’s income
tax centre and ask us to adjust his or her income tax and
benefit returns for those years.                                  ■   Your employee uses the automobile more than 50% of
                                                                      the distance driven in the course of his or her office or
Whichever method you use when you make or receive a                   employment
lump-sum payment at the end of the lease, include the
GST/HST.                                                          ■   Your employee notifies you in writing before the end of
                                                                      the tax year to use this method
Employees who sell or lease automobiles                           If all of these conditions are met, calculate the operating
You can modify the calculation of the standby charge for          expense benefit of the automobile at half of the standby
individuals you employ to sell or lease automobiles if all of     charge before deducting any payments (reimbursements)
the following conditions apply:                                   your employee or a person related to your employee
                                                                  makes. In some cases, this optional calculation may result
■   you employ the individual mainly to sell or lease
                                                                  in a higher benefit amount than the fixed rate calculation.
    automobiles
■   you made an automobile you own available to that              Fixed rate calculation
    individual or to someone related to that individual           The fixed rate for 2017 is 25¢ per kilometre of personal use
                                                                  (including the GST/HST and PST).
■   you acquired at least one automobile during the year
                                                                  If the employee’s main source of employment is selling or
You can choose the rate of 1.5% instead of 2% for the
                                                                  leasing automobiles, the fixed rate for 2017 is 22¢ per
automobile’s cost to you, and calculate your automobile
                                                                  kilometre of personal use (including the GST/HST and
cost as the greater of the following two amounts:
                                                                  PST).
■   the average cost of all new automobiles you acquired in
                                                                  Rates for previous tax years can be found in older versions
    the year to sell or lease
                                                                  of this guide or in section 7305.1 of the Income Tax
■   the average cost of all automobiles you acquired in the       Regulations.
    year to sell or lease
                                                                      Note
     Note                                                             When you use the fixed rate calculation, you still have to
     The cost of an automobile is generally equal to its fair         keep records of this benefit.
     market value at the time of acquisition, including
     GST/HST and PST.                                             Reimbursement for operating expenses
                                                                  If the employee reimburses you in the year or no later than
Calculating an operating expense benefit                          45 days after the end of the year for all actual operating
When you (or a person related to you) provide an                  expenses (including the GST/HST and PST) attributable to
automobile to an employee and pay for the operating               personal use, you do not have to calculate an operating
expenses related to personal use (including the GST/HST           expense benefit for the year.
and PST), this payment is a taxable benefit for the               If the employee reimburses you for part of the automobile’s
employee.                                                         operating expenses in the year or no later than 45 days after
Operating expenses include:                                       the end of the year, deduct the payment from the operating
                                                                  expense benefit that you calculated.
■   gasoline and oil
■   maintenance charges and repair expenses, less insurance       Example
    proceeds                                                      In 2017, you provided your employee with an automobile.
                                                                  She drove 30,000 kilometres during the year, with 10,000
■   licences and insurance
                                                                  kilometres for personal use.
Operating expenses do not include:
                                                                  You paid $3,000 in costs associated with maintenance,
■   interest                                                      licences, and insurance.
■   capital cost allowance for an automobile you own              Calculate the part of the operating expenses that relates to
                                                                  her personal use of the automobile as follows:
■   lease costs for a leased automobile
                                                                  10,000 km × $3,000 = $1,000
■   parking costs, highway or bridge tolls                        30,000 km
If you pay any amount of operating expenses, you have to          If she reimbursed you for the total amount of $1,000 in
determine the operating expense benefit by using either the       the year, or no later than 45 days after the end of the year,
optional or fixed rate calculation.                               you do not have to calculate an operating expense benefit
                                                                  for her.

12                                                       canada.ca/taxes
However, if she reimbursed you for only $800 of the             including the GST/HST. A reasonable estimate is
expenses you paid in the year, or no later than 45 days after   considered to be the amount an employee would have had
the end of the year, the operating expense benefit is $1,700,   to pay in an arm’s length transaction for the use of
calculated as follows:                                          comparable transportation. It includes items such as the
                                                                cost of leasing a comparable vehicle and any other related
10,000 km × 25¢ = $2,500
                                                                operating costs. For more information, go to paragraph 23
$2,500 – $800 = $1,700                                          in Interpretation Bulletin IT-63, Benefits, Including Standby
                                                                Charge for an Automobile, from the Personal Use of a Motor
                                                                Vehicle Supplied by an Employer –After 1992.
Operating expenses paid by employee to third party
                                                                Although other methods of calculating the value of your
If you provide an automobile to an employee and you             employee’s taxable motor vehicle benefit are acceptable, the
require your employee to pay a third party for part or all of   CRA generally accepts that the employment benefit arising
the operating expenses, such as gas or oil changes,             from the employee’s personal use of the vehicle will be
(including the GST/HST and PST) in the year,                    considered reasonable if it is calculated using the rates
administratively, we will allow you to deduct the portion of    shown under “Reasonable allowance rates” on page 14.
the expenses paid by the employee that are attributable to
personal use from the operating expense benefit that you          Note
calculated. Your records have to show that the employee           The standby charge and operating expense benefit
paid the expenses directly to the third party.                    calculations should not be used.
  Note                                                          Depending on how your motor vehicle is used by your
  The portion of the operating expenses that relates to         employee and the conditions that you place on the use of it,
  personal use is the percentage obtained by dividing the       you may be able to calculate your employee’s taxable
  number of personal kilometres by the total number of          benefit using the Motor vehicle home at night policy
  kilometres driven by the employee during the year while       below.
  the automobile was available to the employee.
  Excess amounts cannot be deducted from the employee’s         Motor vehicle home at night policy
  standby charge that you calculated.                           Administratively, you can calculate the taxable benefit for
                                                                your employee’s personal use of the motor vehicle between
                                                                home and work using the rates shown under “Fixed rate
Example
                                                                calculation” on page 12 as long as your employee meets all
In 2017, you provided your employee with an automobile.
                                                                of the following conditions:
He drove 36,000 kilometres during the year,
12,000 kilometres of which were for personal use.               1. The motor vehicle (as defined on page 9) is not an
                                                                   automobile.
You paid $3,000 in associated insurance and maintenance
during the year. Your employee paid $1,500 for gas and oil      2. You tell your employee in writing that he or she cannot
changes. He did not reimburse you for any of your costs            make any personal use of the vehicle, other than
and you did not reimburse him for any of his costs.                travelling between work and home.
1) Calculate the employee’s operating expense benefit using       Note
the flat-rate calculation as follows:                             Your employee will have to maintain full logbooks of the
                                                                  vehicle’s use as proof that there was no other personal
12,000 km × 25¢ = $3,000
                                                                  use.
2) Calculate the personal portion of the operating expenses
                                                                3. You have valid business reasons for making the
that he paid to a third party as follows:
                                                                   employee take the vehicle home at night, such as:
12,000 km × $1,500 = $500
                                                                  ■   it would not be safe to leave tools and equipment at
36,000 km
                                                                      your premises or on a worksite overnight.
3) Calculate your employee’s taxable operating expense
                                                                  ■   your employee is on call to respond to emergencies
benefit by subtracting the amount you calculated in step 2
                                                                      (see Note), and you provide the vehicle so the
from the amount you calculated in step 1, as follows:
                                                                      employee can respond more effectively to
$3,000 – $500 = $2,500                                                emergencies.
                                                                4. The motor vehicle is specifically designed or suited for
                                                                   your business or trade and is essential for the
Benefit for motor vehicles not defined                             performance of your employee’s duties. Just
as an automobile                                                   transporting the employee to the work location does
                                                                   not meet the condition of “essential in the performance
Even if the vehicle you provide to your employee is not            of employment duties.” The following examples meet
included in the definition of automobile on page 8, there is       both conditions:
still a taxable benefit for the employee for his or her
personal driving.                                                 ■   The vehicle is designed, or significantly modified, to
                                                                      carry tools, equipment, or merchandise. Your
You have to reasonably estimate the fair market value of              employee has to have the vehicle to do his or her job.
your employee’s personal use of your motor vehicle,

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