Taxable Benefits from Corporations

 
 
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 Whenever an individual gets any benefit from a corporation, including the use of a company-owned asset for personal purposes, a taxable benefit will generally result that should be reported. Only a limited number of benefits an employee can receive are not taxable, including contributions to a registered pension plan and contributions to a group sickness or accident insurance plan.
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Tips and Traps

Company-owned Automobiles
  • The benefit for the personal use of a company-owned vehicle is made up of two items: a standby charge and the benefit in respect of operating costs. These items will normally be reported together on the employee's T4 form.
  • The standby charge is essentially two per cent of the vehicle's original cost for each month it was available to the individual (i.e. 24 per cent for the year). This charge can only be reduced if it can be shown that both (a) the business use of the vehicle is more than 50 per cent of the kilometres driven and (b) your personal use of the vehicle is less than 20,004 km in the year.
  • Where the vehicle is leased, the standby charge is two-thirds of the monthly lease cost instead of the two per cent of the purchase price.
  • There are two options for calculating the operating cost benefit. Where the farmer establishes that the automobile is used more than 50 per cent of the time for business use, then the operating cost may be calculated as half the standby charge. Farmers who cannot use this method must compute the operating cost benefit at $0.23/km (2016).
.Allowance for Automobile Expenses
  • "The Canada Revenue Agency accepts as a "reasonable allowance" $.54/km for the first 5,000 km and $.48/km thereafter (2016)."
  • A flat rate allowance not calculated based on kilometres traveled will be included in the individual's income.
  • An effective strategy to minimize taxes for a vehicle used both for business and personal purposes is to have the individual purchase the vehicle personally. As a result, there is no taxable benefit for the use of a company-owned vehicle. Charge the company a reasonable allowance for business use using the per kilometre rates noted above. The outcome will be a deduction to the company for the per kilometre payment and no income inclusion for the individual. The individual should, however, pay all vehicle costs and will have a source of tax-free money to do so based on the per kilometre charge to the company.
 
 
 
 
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For more information about the content of this document, contact Joel Bokenfohr.
This document is maintained by Nicole Halvorson.
This information published to the web on July 28, 2014.