Standby charge

When a standby charge arises

The CRA treats the personal driving of an employer-provided automobile as a taxable benefit. The standby charge is the part tied to the car being available to the employee, or to someone who does not deal at arm’s length with them such as a spouse. It is separate from the operating expense benefit, which covers running costs the employer pays.

No benefit arises when there is no personal driving, the car is used only for employment duties and it is returned to the employer’s premises at the end of the workday. Travel between home and a regular place of employment is personal driving, even if the employer insists the car goes home. Trips from home directly to a client’s premises, a point of call, are generally business driving.

How it is calculated

For a car the employer owns, the detailed method takes 2% of its cost, including options, GST/HST and PST, for each 30 days it was available. For a leased car, it takes two-thirds of the monthly lease cost, excluding insurance, for each 30 days. A reduced charge may apply when the employee was required to use the car for work, drove it more than 50% for employment and kept personal kilometres within 1,667 per 30 days. A simplified method of 24% of cost may apply to an owned car in some situations.

Amounts the employee repays the employer for the standby charge reduce it. Employees whose main work is selling or leasing cars are subject to some different rules, so confirm which apply.

An illustrative example

An employer buys a car for $40,000 including taxes, and it is available to an employee for the whole year with some personal driving. Using the detailed method, 2% of cost is $800 for each 30-day period, and a full year works out to 12 periods, or $9,600. If the employee repaid $600 for the standby charge, the benefit is $9,000. If the reduced charge applied, the amount would be smaller. This is illustrative, not a recommended treatment.

What to discuss with your accountant

The employee should keep a logbook of business and personal kilometres, and the employer needs a copy. Without records, the reduced charge may not be available. Confirm whether the vehicle is an automobile for tax purposes, what its cost is, and how the benefit is estimated during the year and trued up at year-end. Include any operating expense benefit, then report the total in code 34 on the T4.

If the owner of a corporation drives a company car, ask how this compares with an allowance or personal ownership.