2. Company Cars that are Rented
Traditionally the motor vehicles used as company cars were purchased by the employer. However, in recent years, the number of vehicles rented (held by employers under an ‘operating lease’) has increased.
An ‘operating lease’ relates to moveable property and is defined in section 23A of the Income tax act. For a lease to be an ‘operating lease’ the lease arrangement must contain the following elements:
1. The employer must lease the vehicle from a lessor in the ordinary course of the lessor’s business (not being a banking, financial services, or insurance business)
2. The vehicle must be available to lease to the general public for a period of less than a month
3. The costs of maintaining the vehicle (including any repairs to the vehicle necessary due to normal wear and tear) must be borne by the lessor; and
4. Subject to the claim a lessor may have against a lessee for failing to take proper care of the vehicle, the risk of loss or destruction of the vehicle must not be assumed by the lessee.
Any lease which does not satisfy these requirements (for example, a “finance lease”) is not an ‘operating lease’ as defined and would result in the tax calculation reverting to that of a company-owned vehicle.