Calculating the Value of the Standby Charge for an Automobile

Note
Attention

The information on this page does not take into account the temporary rules for calculating the benefit related to an automobile for 2020 and 2021. For information regarding the temporary rules, see the Principal Changes page.

End of note

If you or a person related to you makes an automobile available to an employee or to a person related to an employee, you have to calculate the value of the standby charge related to the personal use of the automobile.

You can use work chart TP-41.C-V, Calculation of an Automobile Benefit, or either of the methods below to calculate the value of the standby charge.

Simplified method

You can use a simplified method to calculate the standby charge if all the following conditions are met:

  • You own the automobile provided to the employee.
  • The employee uses the same automobile throughout the year.
  • The employee's duties do not consist primarily in selling or leasing automobiles.
  • The employee is not entitled to the reduction of the value of the standby charge (see the conditions regarding the reduction under the heading “Detailed method” below).

Under the simplified method, the value of the standby charge is 24% of the cost of the automobile.

The cost of the automobile is the cost to you of an automobile you own (including taxes). It does not include the cost of equipment, such as a two-way radio, required for the operation of the business.

Detailed method

You have to use the detailed method to calculate the standby charge if the conditions for using the simplified method are not met.

You own the automobile

If you own the automobile you provide, the value of the standby charge is 2% of the cost of the automobile multiplied by the result of the following calculation: the number of days in the year that the automobile is made available to the employee divided by 30.

If the result of the division of the number of days by 30 is not a whole number and is greater than 1, round it off to the nearest whole number. If less than 1, do not round off. For example, 7.5 is rounded off to 7 and 7.6 is rounded off to 8, whereas 0.63 must not be rounded off.

Cost of the automobile

The cost of the automobile is the cost to you of an automobile you own (including taxes). It does not include the cost of equipment, such as a two-way radio, required for the operation of the business.

End of note

If an employee's duties consist in selling or leasing automobiles, you have the option of calculating the standby charge at the rate of 1.5% rather than 2% if all the following conditions are met:

  • The employee's duties consist primarily in selling or leasing automobiles.
  • You own the automobile made available to the employee (or to a person related to the employee).
  • You acquire at least one automobile in the year.

If the conditions are met and you calculate the standby charge at 1.5%, the cost of the automobile is equal to the greater of the following amounts:

  • the average cost of all new automobiles you acquired in the year for sale or lease;
  • the average cost of all automobiles (new and used) you acquired in the year for sale or lease.

If an employee receives the benefit as a shareholder, you have to calculate the value of a benefit related to the standby charge at 2%.

You lease the automobile

If you lease the automobile you provide, the value of the standby charge is two-thirds (2/3) of the leasing expenses.

Automobile leasing expenses

Automobile leasing expenses include all of the following amounts that you or a person related to you have to pay the lessor for the automobile (including any GST and QST) for the entire time the automobile is made available:

  • leasing costs for the automobile;
  • charges related to mileage;
  • maintenance and repair costs;
  • terminal charges (amounts charged at the end of the lease) minus terminal credits (amounts credited at the end of the lease).

Leasing expenses do not include the following:

  • any penalty paid on cancelling a lease, unless the penalty is determined solely on the basis of the resale value of the automobile at the time the lease is cancelled or is derived solely from an adjustment in the leasing price;
  • the cost of insuring against loss of, or damage to, the automobile or liability resulting from the use or operation of the automobile.
End of note

If you pay an amount at the beginning of a lease that is not a payment to buy the automobile but a payment that reduces the monthly lease payments, prorate the payment over the term of the lease and add the amount to each monthly lease payment when you calculate the standby charge.

If there are terminal charges or terminal credits, the employee can ask to have the value of the taxable benefit resulting from the lease payments adjusted over the term of the lease, provided it is still possible to make the adjustment for the years in question.

Reduction of the value of the standby charge

An employee is entitled to a reduction of the value of the standby charge if all the following conditions are met:

  • You require the employee to use the automobile to perform their duties.
  • The employee uses the automobile more than 50% of the time for the performance of their duties.
  • The employee's personal use of the automobile is not more than 1,667 kilometres per 30-day period or 20,004 kilometres in the year.

If the employee is entitled to a reduction, the value of the standby charge is equal to the result of the following calculation: the value of the standby charge calculated using the detailed method multiplied by the reduction of the value of the standby charge.

To calculate the reduction of the value of the standby charge, divide the number of personal-use kilometres by the result of the following calculation: number of days in the year that the automobile is made available to the employee divided by 30, and multiplied by 1,667.

If the result of the division of the number of days by 30 is not a whole number and is greater than 1, round it off to the nearest whole number. If less than 1, do not round off. For example, 7.5 is rounded off to 7 and 7.6 is rounded off to 8, whereas 0.63 must not be rounded off.

For sample calculations, see guide IN-253-V, Taxable Benefits.

GST and QST

In calculating the cost of the automobile, the leasing expenses and the insurance costs, include any tax that is payable by you (or a person related to you), or that would be payable were it not for the exemption granted by reason of your employer status or the particular use of the automobile.

For more information, click Employee Benefits.

Amounts reimbursed by the employee for the standby charge

You must reduce the amount that is the standby charge by any amounts, other than amounts related to operating costs, that the employee (or a person related to the employee) reimburses you (or a person related to you) in the year for the use of the automobile. If the amounts reimbursed exceed the value of the standby charge, you cannot use the difference to reduce the operating-costs benefit.

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