Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: 1. Whether the reduced standby charge in subsection 6(2.3) of the Act can be utilized for an employee who receives access to an employer-provided automobile on January 1, 2020? 2. Whether a previous employee’s business usage from 2019 can be used to calculate the current employee’s reduced standby charge for 2020 in subsection 6(2.3) of the Act?
Position: 1. No. 2. No.
Reasons: 1. Subsection 6(2.3) of the Act is only applicable for an employee with an automobile provided by the same employer as in 2019. 2. Wording of subsection 6(2.3) of the Act.
XXXXXXXXXX 2021-090069
S. Trop
January 13, 2022
Dear XXXXXXXXXX:
Re: COVID-19 - Reasonable Standby Charge
We are writing in reply to your correspondence of July 5, 2021, where you asked whether subsection 6(2.3) of the Income Tax Act (the “Act”) applies to an employee who received access to an employer-provided automobile on January 1, 2020. You also asked whether the business usage of the automobile used by the employee who held the employment position in 2019 can be used by the current employee to determine their eligibility for the reduced standby charge in 2020 and 2021.
In the situation described, the employee worked for the employer in another role before taking on their new employment assignment in 2020. The employee did not have the use of an employer-provided automobile in their prior employment role in 2019. Due to the COVID-19 pandemic, the employee’s business use of the employer-provided automobile was 20 percent in 2020. The employee who previously held the position utilized the employer-owned automobile 80 percent of the time for business purposes in 2019 and in previous taxation years. This 80 percent business usage was also expected for the current employee in 2020 had the pandemic not occurred.
Our comments
This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R11, Advance Income Tax Rulings and Technical Interpretations.
The benefit arising from the personal use and availability of an employer-provided automobile is included in an employee’s income under paragraphs 6(1)(e) and (k) of the Act. To the extent there is personal use of the employer-provided automobile, paragraph 6(1)(e) of the Act will include a standby charge benefit in the employee’s income. Where a standby charge benefit is included in the employee’s income, and the employer pays for any of the operating costs of the automobile that are related to an employee’s personal use, an operating expense benefit will also be included in the employee’s income under paragraph 6(1)(k) of the Act.
The benefit under paragraph 6(1)(e) of the Act is calculated based on the formula in subsection 6(2) of the Act and is only reduced where, among other things, the employee uses the employer-provided automobile primarily (i.e., more than 50 percent) in connection with, or in the course of, the office or employment.
In light of the impact that COVID-19 lockdowns and public health measures have had on how employees use their employer-provided automobiles, special rules to the automobile standby charge were introduced in subsection 6(2.3) of the Act to allow employees to use their 2019 automobile usage to determine their eligibility for the reduced standby charge in 2020 and 2021. That is, subsection 6(2.3) of the Act considers an employee who used an automobile more than 50 percent of the distance driven for business purposes in the 2019 tax year to have done the same in the 2020 and 2021 taxation years.
Subsection 6(2.3) of the Act is applicable for an employee with an automobile provided by the same employer as in 2019, as evidenced by the wording of subsection 6(2.3) of the Act which explicitly makes reference to the “taxpayer”: “…if the taxpayer met the conditions … for the 2019 taxation year in respect of an automobile…” As such, the business usage of another taxpayer (i.e., the employee who held the employment position in 2019) cannot be used by the current employee to determine their eligibility for the reduced standby charge in 2020 and 2021.
Further, as the current employee did not have use of an employer-provided automobile in 2019, the conditions of subsection 6(2.3) of the Act would not be met (i.e., the employee was not provided with an automobile by the same employer in 2019) and the special rules in subsection 6(2.3) of the Act would not apply in the circumstances.
We trust these comments will be of assistance to you.
Yours truly,
Tom Baltkois, CPA, CGA
Acting Manager
Business and Employment Income Section
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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