What is an Automobile Standby Charge?
Automobile standby charge is calculated when an employee receives an automobile from their employer. The employee then has the car available to them for personal use as well as business use. Employers sometimes provide automobiles to their employees to carry out business related duties which may include employee having access to the automobile for personal use.
This results in the employee enjoying a business provided benefit when the employee uses the car for personal use. This benefit is the result of the employee enjoying the company car for their personal use. An employee using the car for commuting between home and place of employment is considered personal use.
The purpose of the standby charge is to calculate this benefit and include in the employee’s income for tax purposes. The issue is not whether the employee is using the automobile for personal use, employee having access to the vehicle requires calculation of the standby charge.
Standby Charge Calculation
Automobile is used for personal use more than 50% of the time, i.e. automobile is not used for employment purposes more than 50% of the time.
The formula differs depending on whether the employer owns or leases the vehicle.
For employer-owned vehicles: Standby Charge = 2% of the cost of the automobile x (total number of days the automobile was available to the employee / 30)
Example: If an automobile costs $30,000 and was available for 300 days in the year: Standby Charge = 2% x $30,000 x (300 / 30) = $6,000
For employer-leased vehicles: Standby Charge = 2/3 of the lease cost (including GST/HST and PST) x (total number of days the automobile was available to the employee / 30)
Standby Charge Reduction
Standby charge will be reduced if the following conditions are met.
- Use of automobile is 50% or more for the business
- Automobile is driven less than 20,004 kilometre’s for personal use in the year
If the conditions are met then the standby charge will be reduced by using the following formula.
Standby charge x (personal use kilometres / 20,004)
The purpose of standby reduction is to minimize tax implications for employees who use business car mostly for business use and personal use of the car is at a minimum.
Conclusion
It is imperative for employers and employees to comprehend the concept of automobile standby charge in order to adhere to tax regulations and provide accurate reports of taxable benefits. By accurately calculating and implementing any applicable deductions, employees can effectively reduce their tax obligations related to the personal use of vehicles provided by the company.
