Crow child Pipelines Corporation has offered Bing Lee a base salary of $65,000. Bing must choose one of the following compensation packages for the use of his personal automobile.
(a) To receive a reasonable car allowance of $6,000 per year to compensate for the operating expenses and the depreciation of his Jeep, used to drive to remote work sites. The allowance is based on the kilometers to and from the remote location, multiplied by the number of workdays.
(b) To submit receipts for all of his operating expenses for full reimbursement. Bing estimates that his total operating expenses are $4,000 annually. However, this amount does not cover the wear and tear on his car. Bing will use his car approximately 65% of the time for employment and he will be able to claim capital cost allowance (tax depreciation) equal to $3,000.
REQUIRED
Should Bing be indifferent to the choice between these two compensation packages? Explain. Assume a tax rate of 45%.