CRA standby charge: 2% of cost per 30 days, or 2/3 of the lease

The standby charge formula, owned versus leased

The standby charge comes from ITA s.6(1)(e), and s.6(2) sets the formula: A/B × [2% × (C × D) + 2/3 × (E − F)] laws-lois.justice.gc.ca. C is the employer's cost of an owned car and D is the days it was available divided by 30. E is the lease cost for the days it was available and F is the insurance inside that lease cost. Ignore A/B for now: it equals 1 unless the reduction below applies.

Cost includes options, accessories, GST/HST and PST, and isn't reduced by a trade in. Additions after purchase go in; specialized equipment for a disabled person, or for the job such as a two way radio, stays out canada.ca. Because the Act uses the employer's cost, the charge doesn't shrink as the car ages.

Days available divided by 30 is rounded to the nearest whole number when it's greater than 1 canada.ca. A full year is 365 ÷ 30 = 12.17, which rounds to 12 periods. That's where the 24% comes from.

For a leased car, lease cost includes maintenance contracts, excess mileage charges and terminal charges net of credits, plus the GST/HST and PST paid to the lessor. Liability and collision insurance are excluded canada.ca.

When the reduced standby charge applies

Your client gets the reduction only if all three conditions hold canada.ca:

1. The employer requires the employee to use the car for their duties.
2. More than 50% of the distance driven is for employment.
3. Personal driving is no more than 1,667 km per 30 days, or 20,004 km a year.

The reduced charge multiplies the full charge by personal km ÷ (1,667 × periods). With 12 periods the denominator is 20,004, so 10,002 personal km halves the charge.

The 1,667 is written into ITA s.6(2) as B = 1,667 × the rounded periods laws-lois.justice.gc.ca. It isn't a rate Finance resets each January like the operating cost rate, and it's unchanged for 2026 as of October 2026.

Three edge cases catch files every year. Exactly 50% business use fails the test, because the Act wants more than half. A car driven 60% for business but with 21,000 personal km gets no reduction at all, since A is capped at B and the ratio stays 1. And driving between home and a regular place of employment is personal, so a long commute can sink the reduction on its own.

Worked example: a $50,000 car, start to T4

Your client's company in Ontario buys a car for $50,000 including HST and makes it available to an employee for all 365 days of 2026. The employee drives 30,000 km: 21,000 for work and 9,000 personal, so business use is 70%. The employer pays all operating costs and the employee reimburses nothing.

The optional method saves $360.54 here, but only if the employee tells the employer in writing before the end of the year. Without the reduction, the same employee would carry the full $12,000 standby charge before any operating cost benefit.

Swap the purchase for a $750 a month lease (taxes in, insurance billed separately) and the full charge is 2/3 × $9,000 = $6,000. The same 9,000 ÷ 20,004 ratio brings it to $2,699.46.

How it interacts with the operating cost benefit

The operating cost benefit under s.6(1)(k) only exists where there is, or would be, a standby charge laws-lois.justice.gc.ca. For 2026 the fixed rate stays at 34 cents per personal km, and 31 cents for employees whose main job is selling or leasing cars canada.ca. The full rules, including the 45 day reimbursement window, are on the operating cost benefit 2026 page.

Keep the two kinds of employee payment apart. Payments that aren't for operating costs reduce the standby charge. Payments toward operating costs reduce the operating cost benefit instead, and only if made no later than 45 days after year end canada.ca.

Report the standby charge plus the operating cost benefit, including the GST/HST and PST, in box 14 and under code 34 on the T4 canada.ca. Withhold income tax and CPP on it, not EI, and include it in box 26 canada.ca. The T4 box 14 page covers the rest of what goes in that box.

Shareholder versus employee: s.15 or s.6

Which section applies depends on why the car was made available, not on who owns the shares.

An employee, including an owner manager who gets the car because of their employment, picks up the standby charge under s.6(1)(e) on a T4 with code 34. A shareholder who isn't an employee, or who gets the car as a shareholder, has a benefit under s.15(1). The T4130 says to report that on a T4A under code 028 canada.ca.

The math doesn't change between the two. Subsection 15(5) says the shareholder's automobile benefit is computed as if s.6(1), (1.1), (2) and (7) applied, reading "employer" as the corporation laws-lois.justice.gc.ca. It also switches off when an amount is already determined under s.6(1)(e)(i) for the same car, so the benefit isn't taxed twice.

The salesperson rule and the CRA calculator

An employer can elect the 1.5% rate under s.6(2.1) when the employee works mainly selling or leasing cars, the employer owns the car, and the employer acquired at least one car that year laws-lois.justice.gc.ca. Cost becomes the greater of the average cost of new cars acquired that year for sale or lease and the average cost of all cars acquired that year for sale or lease, with GST/HST and PST canada.ca.

To check your numbers, the CRA's automobile benefits online calculator estimates the benefit for employees and shareholders from the cost, days and kilometres you enter canada.ca. It only works for a vehicle that's an "automobile" under the Act. For a worksheet you can keep on file, Form RC18 has a 2026 version canada.ca.