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May 19, 2024

Tax Perspectives

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Please note that these publications may not be up-to-date as taxation matters are subject to frequent changes.

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Supplement 2003

On February 18, 2003, the Minister of Finance released a number of proposed tax changes. We summarize the more significant ones in this commentary.

Standby Charge for Cars

When an employee uses a corporate car, a taxable benefit (called the standby charge) is applied to the employee to represent the personal benefit of having the use of that car. This applies whether the car is owned or leased. The annual taxable benefit is 24% of the corporation's cost of the car or two-thirds of the lease cost.

At present, the standby charge may be reduced when the personal use of the car is less than 12,000 km per year and the car is used all or substantially all (generally meaning 90% or more) for business purposes. This is a high threshold, since a trip to work and back is considered to be personal not business usage. Most persons are therefore unable to reduce the standby charge, leading to a far greater taxable benefit than is deserving.

The Budget proposes to correct this. The standby charge will be reduced on a pro-rata basis if the annual personal driving does not exceed 20,000 km and the automobile is used primarily (more than 50%) for business purposes.

This will completely change the economics of employees using company cars, especially for luxury vehicles.

We will include a comprehensive article on the company car in the next edition of Tax Perspectives.