Congratulations! You got a big promotion at work and it comes with a company car and free parking. But if any of the value of these new perks is considered a taxable benefit, the Canada Revenue Agency will expect you to pay additional income tax.
If you use the company-owned automobile for personal driving outside of business hours, the T4 your employer issues you must show it as a taxable benefit, calculated as follows:
Standby charge, which reflects your personal access to the car for the year. PLUS Operating benefit, which represents the personal part of operating expenses paid by your company for the year. MINUS Reimbursements you make during the year to your employer against the standby charge or operating benefit.
In general, the standby charge is 2% of the original cost of the car, including PST and GST or HST, for each month of the year you use the car. If the car is leased, the standby charge is usually two-thirds of the lease cost, less insurance costs. The standby charge can be reduced if you use the vehicle more than 50% of the time for employment purposes and your personal driving doesn’t exceed 20,000 km annually or 1,667 km in any month.
Generally, commuting to and from work is not considered “employment use,” unless you stop to see a client on the way, so it’s essential to keep accurate mileage records to ensure your standby charge is properly calculated.
In addition, your employer must include a separate operating benefit on your T4 when it pays any part of the car’s operating costs arising from your personal use. This includes gas, oil, tires, maintenance, repairs, licence plates and car insurance, but not parking.
The operating expense benefit is determined by applying a prescribed amount for distance travelled for personal purposes. For 2015, this amount is $0.27 per km of personal use in respect to the operating costs inclusive of GST/HST, minus whatever you may have reimbursed the company during the year. If you are employed principally in selling or leasing automobiles, the prescribed rate is $0.24 per km.
If you use your car more than 50% of the time for business and you provide notification before the end of the year (again, subject to the annual and monthly personal distance restrictions), your employer can calculate your operating cost at 50% of the standby charge, thus reducing your tax bill.
The CRA’s Automobile Benefits Online Calculator will show you how your employer crunched the numbers.
Generally speaking, free parking at work (for your own car or company car) is considered a taxable benefit, whether or not your employer owns the parking lot, unless you can show you need your car regularly to do your job (not counting driving to and from work). The value of the benefit is based on the going rate for a similar parking spot in the same area.
If you only need a vehicle to do your job occasionally, parking may be considered only a partial taxable benefit. However, if you’ve been assigned a free, permanent parking spot due to a mobility-limiting physical disability, that’s not a taxable benefit.
This rule doesn’t apply when your place of business is in an industrial park, strip mall or shopping centre with free parking for both employees and customers.
“Scramble” parking — where there are fewer parking spots than employees who want them, so you have no guarantee of finding a place to park on any given day — is another exception to the rule.
The CRA requires employers to report car and parking benefits on their employees’ T4 forms, so look for them as part of your total taxable income in box 14 and noted as “Other information” at the bottom of the form.