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HomeMy WebLinkAboutFIN 010 Personal Use City VehicleCITY POLICY/PROCEDURE Approval: Chief Administrative Officer Date Originated: Policy Number: Classification: FIN Reference: * Date Revised: ;el/ Category: 010 ..- /___,A--- Subject: 001/001 Policy Title: PERSO USE OF CORPORATE VEHICLES POLICY STATEMENT: The City of Pickering is committed to providing effective services to the residents of the City. In so doing, City -owned (or leased) vehicles may be provided to staff, from time to time, to enable or assist in the carrying out of related duties. In providing these vehicles, personal travel by staff members may be involved and if so, is subject to reporting to Revenue Canada as a taxable benefit. POLICY OBJECTIVE: The object of this Policy is to: 1. Establish a consistent organizational approach respecting the personal use of Corporate vehicles. 2. Establish certain practices for City employees to follow respecting the personal use of Corporate vehicles. 3. Establish the taxable benefit resulting from personal use of Corporate vehicles. 4. Establish the employee's responsibilities in regards to the foregoing. Page 1 of 1 • • CITY POLICY/PROCEDURE Approval: Chief Administrative Officer Date Originated: Policy Number: Classification: FIN Reference: Date Revised: Category: 010 Subject: 001 Policy Title: PERSONAL USE OF CORPORATE VEHICLES GENERAL: 01 Definitions 01.01 Personal Use — Any driving of a corporate vehicle by an employee, or person related to the employee, for purposes other than business, including: • Vacation travel • Driving for personal business • Travel to or from home and work, even if the employer insists the employee drive the vehicle home. 01.02 Corporate Use — Travel during normal hours of employment for the purposes of conducting the business of the City. This also covers business travel during "non normal" (ie. Times other than the normal or standard working hours) hours. Any other travel is considered personal use in nature. Travel by an employee directly to or from work or home to a point of call, which is not the employer's place of business to which the employee regularly reports for work, is considered business travel. 01.03 Corporate Vehicle — Any motor vehicle owned or leased by the City of Pickering and provided to staff for use. 01.04 Log Book — Tool used by the employee to record all personal and corporate use of corporate vehicle. 01.05 Place of Business — The employer's place of business to which the employee regularly reports for work. The exception may be where the employer requires the employee to proceed to a "point of call" on the way to or from work other than the employer's place of business to which the employee regularly reports. Page 1 of 4 • CITY POLICY/PROCEDURE Approval: Chief Administrative Officer Date Originated: Policy Number: Classification: FIN Reference: Date Revised: Category: 010 Subject: 001 Policy Title: PERSONAL USE OF CORPORATE VEHICLES 02 Responsibilities: 02.01 Council to: (a) Actively support the Personal Use of Corporate Vehicles Policy. 02.02 Chief Administrative Officer to: (b) In January of each year approve all vehicles to be assigned to named positions or individuals, where the vehicles will be used for a combination of business and personal use. (c) Advise Departmental/Division Head and the Director, Corporate Services and Treasurer accordingly. (d) Approve this Policy and any amendments as may be required from time to time. 02.03 Department Head to: (a) Support the Personal Use of Corporate Vehicles Policy. (b) In January of each year submit a written request to the Chief Administrative Officer, with a copy to the Director, Corporate Services & Treasurer, respecting all vehicles to be assigned to a named position or individual where the vehicles will be used for a combination of business and personal use. Page 2 of 4 • • CITY POLICY/PROCEDURE Approval: Chief Administrative Officer Date Originated: Policy Number: Classification: FIN Reference: Date Revised: Category: 010 Subject: 001 Policy Title: PERSONAL USE OF CORPORATE VEHICLES 02.04 Director, Corporate Services &Treasurer to: (a) Review and maintain copies of all requests respecting all vehicles to be assigned to a named position or individual where the vehicles will be used for a combination of business and personal use. (b) Receive, review ,and maintain log books and Appendix C as submitted by the employee. (c) Annually calculate any taxable benefits defined in Appendix A attributable to the employee and include it on the employee's T4 for income tax purposes. 02.05 Employee to: (a) Comply with the Personal Use of Corporate Vehicles Policy. (b) Maintain the Log Book assigned to and contained in each vehicle. (c) Submit Appendix C to the Director, Corporate Services & Treasurer by January 15th of each year on any personal use as defined under this policy, including the Log Book. (d) Be responsible, in the event of a corporate or personal audit, to prove and substantiate the figures in the Log Book for their respective personal and corporate use of the vehicles. Page 3 of 4 • • • CITY POLICY/PROCEDURE Approval: Chief Administrative Officer Date Originated: Policy Number: Classification: FIN Reference: Date Revised: Category: 010 Subject: 001 Policy Title: PERSONAL USE OF CORPORATE VEHICLES 03 General Provisions 03.01 The Corporation of the City of Pickering maintains a fleet or pool of vehicles for the use of staff in the conduct of the day-to-day City business. On occasion it may be necessary or beneficial to the Corporation to have an employee continue on the business trip and take the vehicle to his/her place of residence. The Corporation may from time to time assign specific vehicles to employees for both Corporate purposes and personal use in traveling to/from his/her place of residence to his/her normal place of work. Note, the Department Head will assume responsibility for assigning vehicles for day to day operations that do not involve personal use under this policy and the Income Tax Act. 03.02 If an employee does not use a corporate vehicle for personal use, there is no taxable benefit to the employee resulting from the employer's requirement for the employee to use the vehicle in the course of his/her employment. 03.03 When declaring kilometres traveled for personal versus business use, employees should be aware of the consequences of making a false declaration. In the event of a personal taxation audit, the onus of proof is on the employee to substantiate that the figures declared on the vehicle log are correct. 03.04 Since Pickering operates a fleet or pool of vehicles from which the employee may use several vehicles during the year, the average cost of the vehicles can be used provided the same types of vehicles are grouped together. However, since both the employer and employee must agree to the use of an average cost method, the Finance Division will be calculating the standby charges using actual cost for each vehicle the employee used during the year. Page 4 of 4 • FIN -010-001 1. • APPENDIX A Taxable Benefit Calculations Information Required to Calculate the taxable benefit To calculate the employee's taxable benefit, the following information is required: • number of days each vehicle was available for use to the employee in the current taxation year * • the total personal and business kilometres driven by the employee • the total personal kilometres by employee, by vehicle • Vehicle lease costs or the cost of a vehicle if purchased (to be provided by Corporate Services" *If an employee drives a vehicle home on a Friday, and returns to work on the Monday, both Saturday and Sunday must be included as total days available to that employee. If a vehicle is parked at the City offices over the weekend, Saturday and Sunday are not included for the purposes of days available. 2 Calculating the taxable benefit The taxable benefit for personal use of corporate vehicles is made up of two separate amounts — the Standby Charge and the Operating Cost. Appendix B attached hereto is to be referred to and form part of this policy. In all cases reference should be made to the applicable Federal Legislation (including but not limited to the Income Tax Act and related Regulations, and Interpretation Bulletins). a) Standby Charge The formula used for calculating the standby charge is as follows: Leased Vehicle: 2/3 X Mthly. Lease Cost (incl. GST/PST) X # of 30 -Day Periods Vehicle Available to Employee Owned Vehicle: Cost of Vehicle (incl. GST/PST) X 2% X # of 30 -Day Periods Vehicle Available to Employee • i) Reduced Standby Charge The standby charge can be reduced where: • the employee is required by the employer to use the vehicle in the course of employment, • the employee uses the vehicle at least 90% of the time for business purposes, and • the total kilometres for personal use is less than 12,000 kilometres in a taxation year. If the above criteria are met, the formula to calculate the reduced standby charge is as follows: Standby Charge X [(Personal Km. Divided By (# 30 -day periods X 1,000)] ii) Calculating Number of 30 -Day Periods Vehicle Available When dividing the number of days the vehicle is available to the employee by 30, round off the resulting amount to the nearest whole number. For example: Available 130 days divided by 30 = 4.33 (round to 4) Available 135 days divided by 30 = 4.5 (round to 4) Available 140 days divided by 30 = 4.67 (round to 5) If the total number of days available is less than 30, the number of days will be divided by 30. For example: Available 28 days, use 28/30 in the calculation. b) Operating Cost The second component required to calculate is the operating costs related to the personal use of the vehicle. These costs include gasoline, oil, maintenance, licence and insurance paid by the employer. The employer does not have to calculate an operating cost benefit when the employee reimburses the employer for all operating expenses attributable to personal use no later than 45 days after the year. The formula used for calculating the Operating Cost benefit is as follows: i) Personal Km. Driven X $.15 per Km.* For example, if the employee drove 1,000 personal kilometres in the year, • the operating cost benefit would be calculated as follows: • • 1,000 X $.15 per Km. = $150.00 *This rate is set by Revenue Canada and is subject to change. Effective year 2000 the rate is .15 per kilometre. ii) Optional Calculation (This calculation may not be beneficial in all cases.) There is an optional calculation for Operating Cost benefit available if both conditions below are met: ✓ use automobile more than 50% for business use as determined by the total number of kilometers driven for both business and personal use, and ✓ request (in writing before end of year) that this method be used If the above criteria are met, the formula to calculate the Operating Cost benefit (Optional Calculation) is as follows: Standby Charge Amount X 50% If an employee reimburses for the operating cost benefit, the operating cost will be reduced accordingly. This is applicable for both methods of calculation. c) Example to Illustrate Taxable Benefit: Monthly Lease Cost: $237.37 GST@7% 16.62 PST@8% 18.99 Days Available 65 Business Km. 5000 Personal Km. 500 Total Km. 5500 • Calculate the days available: 65 Divided by 30 = 2.17 (round to 2) • Calculate the Standby Charge: 2/3 X ($237.37 + $16.62 +$18.99) X 2 = $363.98 • • • Calculate to see if the Reduced Standby Charge Applies: i) Total Km. minus Pers. Km. (5500 — 500) = 5000 Business Use = 5000 Divided By 5500 = 91% ii) less than 12,000 personal km. Driven in a taxation year N.B. To use the reduced standby charge, the business use percentage must be 90% or greater, and the personal km. must be less than 12,000. Conclusion — the Reduced Standby Charge applies. • Calculate the Reduced Standby Charge: $363.98 X [(500 km. divided by (2 X 1000)] = $91.00 • Calculate the Operating Cost: 500 km. X $.15 = $75.00 • Total Taxable Benefit to Employee: $91.00 + $75.00 = $166.00 APPENDIX B C.C.H. CANADIAN LJMJTE§ECEIVED TY OF PICKERING EXTRACTS RE VEHICLES OCT 1 0 2001 CLERKS DIVISION as -2-99 MIK • •, [1145,200] TYPES OF OTHER DEDUCTIONS The following identifies the more comrrman types of other deductions: [1[45,-2051 • AUTOMOBILE • ., • r: . Generally, those employees who receive a ,company provided autorper bile, as part of their conditions of employment, wilt incur a taxable benefit. • This benefit is based essentially on the percentage• of personal -use of the. automobile during the year. Depending onthe employer's:benefit policies,.' as it relates, to personal -use of the automobile, there maybe runes Whereby the employee must reimburse the employer for the approximate • per- centageof time ;tYzat the employee, is.using the automobile for other than business purposes. • These •reunburrsements' would• be• i}orrnally, handled through payroll deduction and these would have an impact on the 'taxable benefit 'calculation, either to te'standby charge benefit or the operating exliest.• incurred.• se benefitt. • Where an employee repays or : refunds (either directly or . through payroll: deduction) :the full amount of a taxable benefit to an_employer (which includes.lzoth the Standby.charge.a .d operating, cost benefits), the effect is to reduce the income. taxable amount'of the benefit proper. Hop. ever, there is still a requirement to include 7% of the original benefit amount in the employee's income as 'a separate. taxable benefit, under the federal Income Tair.Act, section 6(1)(e:1) orthe Quebec Ta atien'Act, section 41.2. For example, where: • • the before GST amount of the taxable benefit was $100, , the employee partially or fully repaid the $100 to the. employer, and •the• taxable benefit was a taxable supply for GST purpo•sea, • there is still a requirement to include an additional $7 in tile. employee's income, .for 'both federal and Quebec income tax purposes-.Note,�this additional $7 is CPP and QPP pensionable but not El insurable. • [4145,2101 Standby Charge Reimbursement. • One other element of employee reimbursements deals with the calcuu lation of the standby charge. Employee reimbursements or repayments . reduce • the amount of the standby charge taxable benefit. However; as stated' above; when explaining the. GST provisions, the amount• of the GST or•QST which input be iiichided.in income • is not reduced by the amount of any employee reimbursement. Even if 'the full' pre -GST •and pre -QST amount of the benefit is repaid by the employee, 7% (for GST) and 6.696. • tekne 16,042 OTHER DEDUCTIONS 44-2.99 (for QST under the Quebec Ta.Zation Act) must still be included in. the • employee's income as a separate taxable benefit. [145,215] Operating Cost Reimbursement Where the employee reimburses part or all of the employer's actual expenses in relation to operating costs, this sign'if'icantly increases . the record keeping required. In this situation, the following information must be recorded by the employer, • • the actual operating expenses, _ the total kilometres driven, and • the personal use kilometres. These requirements are compounded when an employee .uses more than one automobile in a year or where an automobile is used by more than one employee In a year. In this 'situation,with one exception, the actual costs must be tracked by employee across all the automobiles affected. The exception, where averaging across a fleet of vehicles is permitted, relates to employers who self -insure against damages due to accident, etc. For such self -insurers, costs which would otherwise be borne by an insurance car- rier, as claims under a policy, may be averaged against all automobiles in a fleet. • Where there is a reimbursement, usually handled through payroll deduction, the following illustrates the calculations required; Personal Use km x Actual Operating Expenses = • Actual Expenses Total km Driven Allocated to Personal Use 15,000 km x $750 = . ' }$250.00 45,000 km If the reimbursement equals (or- exceeds) the actual operating expenses- allocated to personal use, there is no taxable benefit to the employee. Otherwise, the reimbursement may be used to reduce the amount of the operating expense benefit. Although the reimbursement is applied against the operating expense benefit, what the employee.is reim- bursing are the actual operating expenses incurred by the employer. Where this reimbursement is complete, no taxable benefit results: , . ¶45,215 © 1999, CCH Canadian Limited l 33 —408 6101 [120,200] BENEFITS [¶20,210] ATHLETIC CLUBS . See, Club Memberships 820,350 or: Recreational Facilities ,¶21,600. [¶20,220] AUTOMOBILE BENEFITS` When an employer provides an employee with an automobile for his or her personal use; .this is'gerierally a taxable.benefit. •Under•both the federal Income Tax Act and the Quebec TahationAct, the taxable benefit in this situation is calculated as two,separate amounts, termed the standby charge and. the operating; expense benefit.. The following paragraphs explain the calculations required; by employers • in. order to determine these. • two amounts. Where an :employer. pays cashrelated to .the. business use' of their employees.'. own vehicles, this is termed.an .automobile allowance and. is covered in. the , Earnings, Allowances and Expense Reimbursements tab division. • The : standby charge and the operating expense benefit only apply to employer-provided.vehicles. which. are both motor vehicles' and automo- biles. These, two definitions are given below. [1120,225] Definitions.2 Motor Vehicle . . • This term has the meaning most people would normally use, a motor= ized vehicle intended for street and highway travel However, there are two exceptions. Trolley buses and self-propelled railway vehicles are: excluded from this definition. ' • • . Automobile .. Under both the federal Income Tax Act and the 'Quebec. Taxation Act, an automobile is defined • as:. •. ' a motor vehicle intended to primarily ' carry individuals; and • which provides seating capacity for no more than a driver and eight other persons. There are also a number of spec• ific exceptions: The•following are not automobiles for.the purposes of taxable benefits: .. • • ambulances; • motor vehicles used as taxis; .: . P.nSSouars • • • 420,225 5102: . EMPLOYEE BENEFITS 33 —4-9e. • buses used in the business of carrying passengers; • hearses used in. the funeral business; and vans or pick-up trucks where either — the seating capacity is three or less, and-' in the taxation year acquired, was used primarily for transporting goods or equipment for business purposes - Or . in the taxation year .acquired, was used substantially to transport . goods, equiprt ent-or passengers for business purposes. • . These two definitions are important because the federal Income Tax Act and the Quebec Taxaiio?i 'Act treat the taxation of ."motor vehicles" differently' than that -of "automobiles". There are very specific rules • for the calculation of benefits related to automobiles that are not 'true of motor vehicles. This does not mean. that employer-provided motor vehicles are not taxable benefits, just that the specific rulesregarding the calculation of the standby charge and the operating expense benefit do not apply. ..For' example, if an employer were to provide al 12 -passenger, full-sized van' to an employee, this °would not bean employerprovided automobile. Since a 12 passenger van is not an automobile,. either federally or' for Quebec tax purposes, there would be no requirement to calculate a standby charge or an operating expense benefit. In the above example, the employer must determine the lair'market value of any benefit received by the employee related to use of the 12-pas- serigervan. Fair market value, of course, offers; far more latitude than the specific, rules relating to the taxable.benpf1tS for automobiles. In addition, employer-provided automobiles are deemed to provide, a benefit to the employee, unless some very restrictive tests are met. These are described below. However; with a motor vehicle, there is also more latitude to argue that the employer.benefits; . rather than the,. employee. - Hence if a vehicle does .not meet the definition of an automobile, there is. more opportunity for the employee to escape any tax consequences. Capital Cost • , . . • Where automobiles are purchased; rather than leased,, the general rule • is that the capital cost for taxable benefit purposes. i.s the acquisition. cost, including all applicable taxes .,(provincial and `GST/QST/HST), to ' diel employer. Note also that this cost may be increased b thy accessories added after the initial vehicle purchase. : . . ¶20,225 01998, CCH Canadian limited 57-3-00 BENt-(TS 6103 Note that the following items do not affect the capital cost used to calculate the standby charge: • Capital cost allowance or depreciation..For taxable benefit purposes,. the initial purchase price applies throughout the life of an automo- bile. • • The $27,000 ceiling, before all applicable sales taxes, used in deter- mining the capital cost allowance allowed as an expense under the Income Tax Act. This ceiling affects the employer's corporate -or business income tax, not the . employee's taxable benefit. • • The applicable level for deductible leasing. costs under the same Income Tax Axt prescription as relates to capital . cost is $700 per month • • The trade-in• value on a previous vehicle. Where a new vehicle is paid for partly through a trade-in, the cost for taxable benefit pur- poses is not reduced by the value of the trade-in. . • Special equipment added to . the vehicle, such as two-way radios, cellular telephones, heavy duty suspensions and power winches, that are required for business purposes. • The following are exceptions to the general rule that the standby charge is based on. the employer's acquisition cost. [120,2281 Persons Employed Principally in Selling or • Leasing Automobiles • Where the employee's principal duties are the selling or leasing' of automobiles, the employer may use an average cost, rather than the actual_, cost in the standby charge calculations. Note, principally would normally mean more than 50% and is tested against the employee's duties rather than an employee's income from such activities. Administrative, parts or service employees would not ordinarily meet this test and hence this alternative is not available to them. Where this average cost is available for use, the average must be tale higher of • the cost of all new automobiles that the employer acquired to either sell or lease in the year in the course of the employer's business, or • the cost of all automobiles that the employer acquired to either sell or lease in the year in the 'course of the employer's business. For Quebec, the standby charge can be reduced if the employer. is in the business of selling or leasing automobiles from 2% to 1% providing the same conditions as outlined by the Canada Customs and Revenue Agency are. met. • PAYSOURCE 120,228 6104 ' EMPLOYEE BENEFITS 57 — 3-00 [11-20,230] Automobile Purchase Exempt from Sales Tax Under the new rules in effect for 1996, where the employer's actual cost of an automobile did not include either GST, QST or provincial sales tax, the capital cost used in the standby charge calculations must be increased to reflect any sales taxes which were not actually owing and paid. Note, , no additional provincial sales tax . would apply to ' such' purchases made in Alberta, where currently there is no provincial sales tax, For example, an employer is not normally subject to provincial sales tax on automobiles purchased Ontario for re -sale. Such vehicles are commonly made available to employees for their personal use. Assume that the employer uses the average cost available in this situation, and that this average cost is $20,000. The employer in this situation would have to increase the average cost by 8%, 'or $1,600, before calculating the standby charge. . • Monthly Lease Cost The monthly lease cost is the amount paid to the leasing company for the automobile. Again, this is the actual lease cost, not the maximum monthly cost which the employer may deduct from income for corporate tax purposes. Included in the lease cost are: • all federal and provincial sales taxes including GST/HST/QST; • terminal charges or credits; • maintenance fees payable under the lease; and • excess mileage charges payable under the lease. Excluded from lease costs are: • operating expenses; and • insurance costs. Terminal Charges or Credits Depending on the leasing agreement, an automobile may be subject to either a terminal charge or terminal credit at the end of the leasing period. Such charges or credits are lump sums either paid or received by. the employer at the end of the lease. In effect, they imply a retroactive adjust- ment to' the monthly amounts paid under the lease. Where these occur, there are two methods of reporting the adjustment. One, the employer would • issue amended T4s (and RL -1 slip) for the employees and years concerned. This method is available where: • the employee(s) and employer agree; and • The Canada Customs and Revenue Agency (and Revenu Quebec) can reassess the individuals concerned (not statute barred). Where ¶20,230 , © 2000, CCH Canadian Limited 57 — 3.00 BENEFITS 6105 this method is used, Revenue Canada recommends providing the employee with a letter to explain the nature and amount of the adjustments shown .on the amended slips. Two, the employer reports the adjustment in the year the lease termi- nates. As a practical matter, it is possible for. a terminal credit to reduce a person's taxable income to less .than zero. In this case, the employer would presumably.have to adjust a prior year's T4 (and RL—1 slip). Fleet Operations • Certain employers may permit employees to use different automobiles out of a large fleet that is either owned or leased by the employer. Where the employer and employee agree, and the employee is not assigned a particular automobile from the fleet on a long-term or exclusive -use basis, the tax authorities will allow the standby charge to be calculated by applying an average cost of the fleet from which the automobile is pro- vided. This average cost may be over the entire fleet, where this consists of similar automobiles, or over automobiles by class, where several different cost ranges exist. Operating Ejcpenses Operating expenses include: • annual licensing fees; • fuel; • ordinary repairs and maintenance, including oil changes and car washes; • insurance; and • for self-insured employers, costs which would otherwise be paid for under an insurance policy claim. Note, that parking is considered a separate taxable benefit, and is excluded from the calculation of both the standby charge and the oper- ating cost benefit. Total 'Number of Days Available This refers to the number of days the automobile was accessible for use by the employee. This would normally be the same as the number of . days in the tax year. This number would be less where the automobile was acquired or disposed of in. the year. This number may be reduced where the employee relinquishes control. Relinquishing Control 'Reducing the number ° of days the automobile is available. to the employee has a direct impact on the standby charge levied against the employee. An employee can reduce. the number of days available by relin- quishing control of the automobile to the employer. To do this, physical control of the automobile, and all keys, must be returned to the employer for the period concerned. There must be a written log of the days the automobile was not available to the employee through such a return. PAYSOURcE ¶20,230 6106 EMPLOYEE BENErITS 57 - 3-00 The following qualify as periods of relinquished control: • Parking the automobile in the company's lot under a controlled sign -in of the automobile and keys; for example, during an extended vacation or business trip. • Maintenance or repairs to an automobile at a dealer or repair shop when no replacement vehicle or service loaner is provided. Remember, it does not qualify as relinquishing control if the automo- bile is parked at home or at the airport while away on vacation or a business trip. Number of 30 -Day Periods Available The number of days available, after any deductions for relinquished control and divided by 30, is subject to rounding. The following illustrates this rounding. Note, there is no rounding where the division results in a number less than one. Days Available Divided by 30 Rounded 25 0.83 0.83 333 11.10 11 345 11.50 11 346 11.53 12 355 11.83 12 PAYROLL POINTER: The above chart illustrates the impact that relinquishing con- trol can have on the calculation of the standby charge portion of the taxable benefit. Using the formula under basic standby charge below, each 30 -day period from the above chart increases the standby charge by 2% of the automobile's capital cost. For example, for a vehicle with a capital cost of $25,000, each increase in the number of 30 -day periods adds $500 to the annual standby charge. Payroll professionals should encourage employees to minimize the standby charge by relinquishing control of employer-provided automobiles during periods of vacation or other periods when the employee is not benefiting from its use. In some cases, it may even be to the employee's advantage to rent a replacement vehicle in order to reduce the number of 30 -day periods used in the standby charge calculation. ¶20,230 ® 2000, CCH Canadian Limited 57 - 3-o0 BENEFITS 6107 Personal Kilometres Driven Personal driving includes: • all personal travel .such as shopping, personal appointments and vacations; • most travel between the employee's home and employee's ordinary work location. Business Kilometres Driven. Any kilometresdriven other than for personal use are considered to be for business purposes. Business use includes travel directly to or from the employee's home and • a location other than that of the employer, such as that of a client, where either permitted or required by the employer, or • a location of the employer, where • — an employee's privately -owned vehicle is prohibited from entering a restricted area where employment duties are to be performed, and — the distances to 'be travelled within the restricted area are such that the use •of an automobile is required. PAYROLL POINTER: When declaring kilometres travelled for personal versus busi- ness use, employees should be made aware of the consequences of making a false declaration. In the event of a personal taxation audit, the onus of proof is on the employee to substantiate that the figures declared are correct. A daily log of kilometres driven and for what purpose, business versus personal, is vitaL • Remember, that normally an employee must include driving to and from work as personal kilometres driven. [120,2351 Benef Its Remember, that the following benefits apply only to employer-provided automobiles. Standby. Charge This benefit is meant to measure the capital cost of the vehicle pro- vided to the employee. In essence, there is a very specific formula which deems the .amount of the benefit which must be included in the employee's income. There are three potential steps involved in the calculation of the standby charge: PAYSOURCE • 120,235 6108 EMPLOYEE BENtri:s 57-3-00 Step 1— Basic Standby Charge Automobile purchased by the employer Capital Cost + all applicable taxes x .02 x Number of 30 -Day Periods Automobile leased by the employer Monthly Lease Cost + all applicable taxes x 2l3 X Number of 30 -Day. Periods Employee leases or sells •Higher automobiles -average , cost • + all applicable taxes x .015 x Nurnber : of 30 -Day Periods Step 2 —Reduced Standby Charge . The standby charge calculated above can be reduced where the fol- lowing criteria are met: .. • the employee is required to drive the automobile by the employer as part of his or her employment duties; • 90% or more (substantially all) of the total kilometres driven are for business purposes; and . . • the personal kilometres driven average less than 1,000 per 30 -day period. _ If these are met, then the following can be used to reduce the standby charge otherwise calculated: Standby Charge x ' Personal Kilometres Driven Number of 30 -Day Periods X 1,000 Step 3 = Employee Reimbursements The last step in the actual calculation of the standby charge benefit is to apply arty employee reimbursements. Employee reimbursements or repayments reduce the amount of the standby charge taxable benefit. EXAMPLE The following give examples of the standby charge calculations required under various scenarios: -1. Personal Use Greater Than 10% Assumptions 1. Automobile purchased by employer for $30,000 including all taxes. 2. Total number of days available to the employee in the year, 230. . 3. Personal kilometres driven in the year, 27,000. 4. Total kilometres driven, 45,000. ¶20,235 ® 2000, CCH Canadian Limited k 57-3.00 BENEFITS 6109 Calculations 1. Number of 30 -day periods = 230/30 = 7.67 = 8 2. Basic Standby Charge = $30,000 x .02 x 8 = $4,800 2. Personal Use Less Than 10% Assumptions 1. Automobile purchased by employer for $30,000 including all taxes. 2. Total number of days available to the employee in the year, 230. 3. Personal kilometres driven in the year, 3,000. 4. Total kilometres driven, 45,000: Calculations 1. Number of 30 -day periods = 230/30 = 7.67 = 8 2. Basic standby charge = $30,000 x .02 x 8 = $4,800 • 3. Reduced standby charge = $4,800 x 3000 8 x 1,000 = $4,800 x 0.375 = 41,800 3. Average Cost on Purchases Exempt from Sales Tax Assumptions 1. Average cost of all new vehicles, $23,000 including GST. 2. Average cost of all used vehicles purchased $10,500. 3. Purchases were exempt from 7% British Columbia Sales Tax. ' 4. Total number of days available to the employee in the year, 230. 5. Personal kilometres driven in the year, 27,000. 6. Total kilometres driven, 45,000. PAYSOURCE ¶20,235 6110 EMPLOYEE BENEFlTS 57 - 3-00 Calculations 1. Number of 30 -day periods = 230/30 = 7.67 = 8 2. Add sales tax to cost = $23,000 x 1.07 3. Basic standby charge = $24,610 x .02 x 8 = $3,937.60 Operating Expense Effective January 1993, the Canada Customs .and Revenue Agency and Revenu Quebec have greatly simplified the requirements for calculating the operating expense benefit related to employer provided automobiles. Despite this simplification, this benefit can still involve a fair degree of record keeping on the part of both the employer and the employee. This section looks at four different treatments of the operating expense benefit, particularly with a view to the record keeping required. No operating expense benefit There are two situations under which an employee would not be subject to an operating expense benefit for an employer provided automo- bile. First, no operating expense benefit need be calculated by the employer where no standby charge is included in the employee's income. Technically, where no standby charge applies the employee could still be subject to a taxable benefit based on the fair market value of any employer paid operating expenses. However, it would be unlikely any operating expenses could reasonably be allocated to personal use if no. standby charge applied to the employee. Second, there is only an operating expense benefit where the employer has actually paid operating expenses for the automobile used by an employee. Operating expenses, as defined above, .would normally include annual licence fees, insurance, fuel, and repairs and maintenance. Where these are paid directly by the employee, there is no employer requirement to calculate an operating expense benefit. Note, that this is a different situation than an employee reimbursement of operating expenses incurred by the employer. See below. 1120,235 © 2000, CCH Canadian Limited 57 - 3.00 BENtrtIS PAYROLL POINTER: • Having the employee .directly pay operating expenses for an employer provided automobile might be an option in some situa- tions where employees have trouble with the record keeping required to track personal use kilometres.: This is particularly true when the, employee is not eligible for the reduced standby charge, • as described above. Where the employee is. not eligible for the reduced standby -- charge and where the employee pays the operating expenses of an employer provided automobile, there is no obligation to track. per- sonal use kilometres. Requiring employees to properly track these kilometres can be a significant problem for some employers. 15 cent rule This rule was first introduced effective January 1, 1993. Under this method, the operating expense benefit is calculated as 15 cents per per- sonal use kilometre (effective January •1, 2000).. Previously there was a requirement to track and assign actual operating, expenses by employee and automobile. This change eliminated that requirement and significantly reduced employer overhead in calculating the operating expense benefit. Note, that for employees who lease. or sell automobiles, the 15 cents per kilometre is reduced to. 12 cents, effective January .2000. This is • the same set of employees discussed'under•Persons Employed Principally in Selling or Leasing Automobiles, at 120,228. . 50% of the standby charge An optional method to calculate the operating expense benefit is to base it on the standby charge. Under this method the operating expense is calcu- lated as half the standby charge taxable benefit. This is available where: • at least 50% of the kilometres driven were business use, and • the employee requeststhis method in writing prior to year-end. This option is attractive, for example, where the employee was, able to reduce the standby charge because less than 10% of the total kilometres were for personal use. This option is a little more complex than the 15 cent.rule; since both business use and total kilometres must be known (for the 50% test). .Employee reimbursement Where the .employee reimburses part or all of the employer's actual expenses in relation to operating costs, this' significantly affects the record keeping required. In this situation, the following information must be recorded by the employer: • the actual operating expenses, PAYSOURCE ¶20,235 6112 EMPLOYEE•'BENEFlTS . 57-3-00 • the total kilometres driven, and • the personal use kilometres. These requirements are compounded when an employee uses more than one automobile in a'year or where an automobile is used by more than one employee in 'a year. In this situation, with one exception, the actual costs must be tracked by the employee across all the automobiles affected. The exception, where averaging across a fleet of vehicles is permitted, relates to employers ° who self -insure against damages due to accident, etc. For such self -insurers, costs which would otherwise be borne by an insurance- carrier, as claims under a policy, may be . averaged against all automobiles in a fleet. Where thereis a reimbursement, the following illustrates the calcula- tions required. Personal Use Kilometres Expenses X Actual- Operating Expenses = to Total Kilometres Driven Personal Use 15,000 km 45,000 km. x $750 = $250.00 If the reimbursement equals (or exceeds) the actual operating expenses allocated to personal use, there is no taxable benefit to the employee. Otherwise, the reimbursement may be used to reduce the amount of the operating expense benefit calculatedusing the 15 cent rule. Although the reimbursement is applied against the operating expense benefit, what. the employee is reimbursing are the actual operating expenses incurred by the employer. Where this reimbursement is com- plete, no taxable benefit results. ' PAYROLL POINTER: Although employee reimbursement of operating expenses adds complexity to the calculations required, this can significantly reduce the: resulting taxable benefit. Taxable benefit calculations for employer provided automobiles are quite complex, particularly if payroll professionals 'are sensitive to the impact of different options on employees. In -particular, what reduces the taxable ben-. efit ,for one employee may not be practical for another. For example, where personal use kilometres are high, the result of the 15 cent rule can be significantly greater than the actual operating expenses incurred by the employer. Payroll professionals can take a proactive stance in this situation and offer useful' advice to aid employees in minimizing tax liabilities. ¶20,235 CD 2000, CCH Canadian Limited • • 43 —1-99 BENEFITS 6113 [520,240] Withholding and Reporting Both the standby and the operating expense benefits are subject to withholding under Federal and Quebec Income Tax and Canada or Quebec Pension Plan contributions. See the Year -End Reporting tax division at 1[65,000 for details of the remittance procedure related to GST/HST/QST on taxable benefits Automobile benefits are pensionable Since the benefit is non-cash it is not insurable. Therefore, no Employment Insurance premiums are calcti- lated on either the stanidby charge or the operating expense charge. Box 14 and Code 34 (in the "Other Information" area) of the T4, 28 on the T4A, and A and. I on the RL -1 slip are used to report the value of taxable -benefits related to automobiles. For Quebec, the taxable benefit for a shareholder, who is not an employee, and *a partner are not subject to source deductions or included in the earnings for the calculation of health services fund or Commission des normes du travail .(CNT) and Fonds national de formation de la main -d'oeuvre (SQDM). • PAYSotmcB [rhe next page is 6201.] ¶20,240 APPENDIX C SUBMISSION REQUIREMENT FOR USE OF CORPORATE VEHICLE (TO BE SUBMITTED JANUARY 15 OF THE YEAR FOLLOWING THE PERIOD INDICATED BELOW) TO: Payroll Supervisor Corporate Services Department Employee information: Name: Address: Period covered by this declaration: From: Automobile Information: (Please attach "Lo book" To: — Year, Make, Model Period Available From To Day/Month Day/Month Personal Kilometres driven in the period Total kilometres driven in the period Total : 1) Was the vehicle left on the City's premises during the weekends? If "Yes", number of days: 2) Was vehicle left on the City's premises during your vacation and statutory holidays? If "Yes", how many days was the vehicle left on the City's premises? 3) How many days was the vehicle sent for repairs and not in your custody? 4) Other than the above 3 situations, were there any other days that the vehicle was not in your custody? If "Yes", please explain and indicate the number of days not in your custody: I hereby certify that the information given in this form is true, correct and complete to the best of my knowledge and belief. Employee's Signature: Date: In the event of a personal taxation audit, the onus of proof is on the employee to substantiate that the figures declared as above are correct.