The Department of Finance has proposed in Backgrounder, Temporary Adjustments to the Automobile Standby Charge for the 2020 and 2021 Taxation Years Due to COVID-19, that employees who have been provided with an automobile by the same employer in 2019, 2020, and 2021 may opt to use their 2019 automobile usage to determine whether they used the vehicle primarily for business purposes (i.e., more than 50%). This temporary change has been proposed as employees may have used their employer-provided vehicle less often for business purposes because of COVID-19 related lockdowns and reduced business activity. This situation may have impacted their eligibility to use the reduced standby charge.
As a reminder, the standby charge is meant to represent the benefit the employee obtains for having an employer-provided vehicle available for their personal use. It basically estimates a capital cost amount for the vehicle that has been provided based on a set of very specific formulas. Some employees may be eligible to use a reduced standby charge, which adjusts the normally calculated standby charge by an annual personal use adjustment factor. This reduced standby charge is available to employees that have been provided with an automobile by their employer and the following conditions have been met:
- the employee is required by the employer to use the vehicle in connection with employment;
- the automobile is used more than 50% for business purposes; and
- the personal use kilometres do not exceed 1,667 per 30-day period for a total of 20,004 a year.
This proposed change may also impact the calculation of these employees’ operating cost benefit. The operating cost benefit relates to an employee’s personal portion of the expenses incurred by an employer for the operation of an automobile. The operating costs benefit is generally calculated based on 27¢ per kilometre (including taxes) of personal use for the year 2021 unless the employee is mainly involved in selling or leasing automobiles where the fixed rate will be 24¢ per kilometre (including taxes). However, an employee has the option to use half of the standby charge calculation for determining this benefits amount where:
- the standby charge is included in the employee’s income;
- the employee uses the automobile more than 50% in the course of their employment; and
- the employee notifies the employer in writing, before the end of the taxation year, to use this method.
For 2020 and 2021, it is further proposed that for employees eligible for the optional operating cost benefit, based on their 2019 automobile usage, the third condition noted above would be waived. Instead, the employee’s operating cost benefit would be calculated as the lesser of either the regular operating cost benefit or the optional calculation.