Michelle is hired as a regional manager for a large pharmaceutical company where she manages a group of 20 individuals. She does not make any commissioned income. For a period of six months of the year (July to December) she is given the use of a company car which is leased by the company at a cost of $600 per month (including taxes). During the time she has access to the company car she drives a total of 16,000 kilometres of which 3,000 kilometres was for personal use. What is the minimum amount that Michelle’s must report as a stand-by charge for the year?
The correct answer is a. The amount of the stand-by charge (for leased vehicles) is calculated as 2/3 of the monthly lease cost (including taxes). In Michelle’s case, 2/3 of $600 is $400. Although the answer would seem to be 6 x $400 = $2,400, this is not correct. As Michelle drove the car for business purposes more than 50% of the time and her personal kilometres totalled less than 1,667 per month, she can reduce the stand-by charge by [3,000/(6 x 1,667)].
$2,400 x [3,000/(6 x 1,667)] = $719.86