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When Work Cars Double as Personal Cars: Key Tax Rules Explained
Employers often need to provide employees with vehicles to help them carry out work-related activities efficiently and conveniently. In most cases, these vehicles will also be used, to some extent, for personal activities.
This article examines the tax rules that apply in such situations.
How Personal Use of an Employer's Vehicle Becomes a Taxable Benefit
Expenses incurred by an employer in providing and maintaining a vehicle used by an employee for employment-related activities can be claimed as a business expense. Such employment-related activities include:
- travel between an employee's regular place of employment and a point of call (for example, for a meeting, customer visit, or repairs);
- travel between an employee's home and a point of call; and
- other travel undertaken for business purposes.
When a vehicle is used for an employee's personal activities, the value of the personal-use benefit is taxable to the employee. The employer must include this benefit on the employee's T4 slip and must withhold and remit the appropriate tax to the CRA. Personal activities are those not related to the employee's work duties. Examples include:
- travel between the employee's home and the regular place of employment;
- vacation trips;
- driving for personal errands; and
- similar non-business use.
The taxable employee benefit represents the total value of the advantages received by the employee when an employer-owned or leased vehicle is made available to the employee for personal use, combined with any operating costs the employer pays in connection with that personal use. Any amounts reimbursed by the employee to the employer, are deducted from this calculation.
For the purposes of this regime, the term "employee" includes an officer, a partner, a shareholder, and any person who does not deal at arm's length with such individuals.
What is a Point of Call?
The CRA considers a point of call to be any location, other than an employee's regular place of employment, where the employee performs work-related duties. For travel between an employee's home and a point of call to qualify as employment-related driving, it must be reasonable for the employee to travel directly between his home and that point of call. If this condition is not met, the travel will be treated as personal driving.
What Is an Employee's Regular Place of Employment?
An employee's regular place of employment is any location where the employee consistently reports to work or performs his employment duties. The term "regular" implies a degree of frequency or repetition in the employee's 'reporting to work' at that location over a given period, whether weekly, monthly, or annually. A regular place of employment does not need to be the employer's own establishment, and an employee may have more than one regular place of employment. Examples of regular place of employment include:
- an office where the employee reports daily;
- a store that a manager visits monthly;
- a client's premises where the employee reports daily for a six-month project;
- a client's premises where the employee attends bi-weekly meetings; and
- similar recurring work locations.
Pro Tax Tips: Keeping Accurate Records for Employer-Provided Vehicle Use
It is easy to confuse personal driving or errands with the use of an employer-provided vehicle, which can blur the lines between taxable benefits and business expenses. Meticulous record-keeping of mileage and the purpose of each trip is therefore essential. Relying on arbitrary CRA assessments to determine these calculations is not advisable.
In today's age of technology, numerous software applications are available to help track and document the use of employer-provided vehicles. Employers are also advised to maintain proper records, such as a logbook, to document vehicle usage for employment-related purposes. One practical approach is to keep a detailed record of all work trips undertaken with the vehicle.
Frequently Asked Questions (FAQs):
What vehicle use by an employee is considered employment-related and can be claimed as a business expense of the employer?
Employment-related vehicle use includes travel between an employee's regular place of employment and a point of call (e.g., for meetings, customer visits, or repairs), travel between an employee's home and a point of call, and other travel undertaken for business purposes.
When does the personal use of an employer-provided vehicle become a taxable benefit?
Personal use becomes a taxable benefit when the vehicle is used for activities not related to the employee's work duties, such as travel between home and the regular place of employment, vacation trips, personal errands, or similar non-business use. The value of the benefit is taxable and must be included on the employee's T4 slip, with appropriate taxes withheld and remitted to the government, by the employer.
What is a "point of call" according to the CRA, and how does it affect whether travel is employment-related?
A point of call is any location other than an employee's regular place of employment where work-related duties are performed. Travel between home and a point of call qualifies as employment-related driving only if it is reasonable to travel directly between home and that point. If not reasonable, the travel is treated as personal driving.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
