Question

In 2020, Alpha’s employer provided him with an employer-owned automobile costing $33,900 (including HST of $3,900) for 12 months. His kilometres for personal use were 5,000 out of a total of 20,000 kilometres. Operating costs paid by his employer during 2020 were $3,503 (including HST of $403). Which one of the following statements is true for 2020?

A. Alpha’s minimum operating cost benefit is $1,250.

B. Alpha’s minimum operating cost benefit is $1,017.

C. Alpha cannot elect to use ½ of his standby charge as his operating cost benefit.

D. Alpha’s minimum standby charge is $4,000.

Answer 1

Solution:-

Correct Answer is

B.) Alpha's Minimum Operating Cost benifit is $ 1,017

Working Note:-

Satndby Charges = $ 33,900 X 0.02 X 12 = $ 8,136

Here person use of car is less than 50% of Office use.

Then Reduced Standby Charge

Benefit Reduction Ratio (BRR) = 5000km / 20,004 = 0.24995

Reduced standby charge =  $ 33,900 X 0.02 X 12 X 0.24995 = $ 2033

Operating cost benefit is the lesser of

Reduced Standby Charge X 50% OR Personal Used Km X 25 cent

$ 2,033 X 50% = $ 1,017 OR 5000 Km X 0.25 = $ 1,250

In this case, $1,017 is the figure used for the operating cost benefit.