Corporate Vehicle Ownership
The answer to the question who should own the vehicle, the shareholder or the corporation? considers many factors including:
- The number of KM’s for corporate use?
- The number of KM’s for Personal use?
- Is the purchase price above or below 30K?
- If leasing, what are the leasing costs? Less than or greater than $800.00/month
- What are the operating costs?
It is also important to track personal and business use: Personal use includes
- Driving to and from home and office
- Traveling on vacation
- Trips to conduct personal business
If you work from home and go to see a client this would be considered business travel.
Regardless of who owns the vehicle, company or shareholder, you must track your mileage to support your tax claims.
Always keep a logbook or a smartphone application, that you can classify each trip as business or personal.
If you own the vehicle personally.
If you use your personally owned vehicle you can claim a tax-free allowance for the business usu where you have taken this vehicle. There is an all-encompassing fee for use of a personal vehicle and that fee is $0.58 per kilometer for the first 5,000 kilometers and$0.52 for each additional kilometer. This is the rate for most of Canada, but rates in the far north are somewhat higher. Remember if you claim this mileage you cannot claim any amortization or repair expenses as these rates are considered all-inclusive.
If the corporation owns the vehicle
When the corporation owns the vehicle then all costs of ownership with the exception of the personal use portion are for the benefit of the corporation, This means that the corporation can claim the amortization and repair expenses. Personal use of these vehicles is considered a taxable benefit as outlined in the formula below. There are also price limits on vehicles such as automobiles in that they cannot exceed $30,000 total cost before GST or $45.000 for electric cars. If leased, the monthly leasing cost cannot exceed $800.00 per month plus GST.
Fortunately, the CRA differentiates between automobiles owned by the corporation and other business vehicles such as tow trucks and vans that have very limited personal use. These vehicles have different amortization rates and their personal use is minimized. Nonetheless, you must continue to track and record trips and separate business from personal.
Is it an automobile or a motor vehicle?
If the vehicle is used more than 90% of the time for business and is used to transport goods or provide a service, it will likely be viewed as a motor vehicle and not an automobile. If this use does not change, there should be minimal challenges as long as the mileage logs are maintained and segregated between personal and corporate. You should also ensure that the primary use of the vehicle does not change during its useful life.
Lease or Buy
This is a financing decision. For automobiles, we usually recommend a lease not exceeding 3 years because most leased cars have minimal quality control or repair issues in the first 3 years of service. Lease vs buy is a purely financial decision. If the corporation purchases the car then financing expenses are also deductible in the monthly $800. Limit. If it is owned by the shareholder or employee, then the flat mileage rate covers these costs. either way, it is a pure business financing decision.
Operating charge and standby benefit
An operating charge and a standby charge is charged to the shareholder or employee when the vehicle is available for private use. It should be noted that the standby charge is 2% of the original cost of the vehicle each month that it is available times the number of months the vehicle is available for use. It should be noted that this is the original purchase price of the vehicle that is not amortized over the life of the vehicle.
If the automobile is used more than 50% of the time for business and driven less than 20,000 km for personal use, then the standby charge can be reduced by a significant factor. Please call us for details.
The personal use of of operating benefit is a taxable benefit of $0.27 cents per kilometer over and above the standby charge.
The standby charge is considered insignificant if the vehicle is used more than 90% of the time for business.
If the vehicle is used primarily for business, it is better if it is corporately owned. If it is used less than 50% of the time for business, the standby charge can bee crippling especially in addition to the operating cost. If financing is involved, then the situation becomes even more complex, If you are somewhere in between, talk to us for a detailed analysis as well as advice on trip recording software. Call us at 1-855-561-4589 for direct and immediate advice.