Because of the formula used to calculate the taxable benefit when an employer owned vehicle is provided to an employee, the amount of the benefit can exceed the value of the vehicle. Explain this statement.

Question

Quizplus · Accepted Answer

The Answer is The formula requires a benefit of 2 percent of the cost of the vehicle per month of use. This benefit continues, without regard to the length of time the car is used by the employee. At this rate, after 50 months, the taxable benefit is equal to the value of the vehicle [(2%)(50)= 100%]. If the vehicle is used for more than 50 months, the amount of the benefit will exceed 100 percent of the cost of the vehicle.

Because of the Formula Used to Calculate the Taxable Benefit