This project aims to review your corporation’s vehicle expenses. If you haven’t received a letter from the CRA then expect to get one soon.
Here’s what you need to know.
What is the goal of the project?
The main goal of this project is to deny non-allowable automobile expenses. This includes operating expenses, leases and tax depreciation's. It will then attribute taxable benefits to the employees or the shareholders of a corporation or both.
Keep in mind that taxable benefits are costly because they are taxable to the individual at their marginal tax rates which is currently up to 54%.
Limitations for Corporate Owned Vehicles
1.General Expense Restrictions
We have the following general expense restrictions for passenger vehicles.
- Leasing costs are limited to $800 per month.
- Tax depreciation or capital cost allowance is limited to the first $30,000.
- The limit on loan interest is $300 per month.
Remember that as the price of your vehicle goes up, the amount of your deductible leasing expenses will decrease which can make the actual deduction on an expensive vehicle small.
2.Writing Off your Vehicle for Business is a Big No-No
It is not a good idea to let your business buy that high-end car for you and pay all its expenses. It doesn’t matter if you put your company logo on it or if you have another car at home.
Also you can’t always write off your car lease or the down payment either.
3.Using the Company Car at Home just got Expensive
If the company car is used at home then employees or shareholders can be subject to the following taxable benefits.
- A monthly standby charge of 2% of the cost of the vehicle or two-thirds of the monthly lease.
- An operating benefit of $0.28 per personal use per kilometer.
The taxable benefit reduces if the car is used more than 50% for the business but this has to be proved via the cars logbook.
Permitted Deductions for Corporate Owned Vehicles
There is a reasonable mileage-based allowance for the use of a vehicle in a business.
- The first 5000 kilometers has an allowance of $0.58
- After 5000 kilometers, the allowance is $0.52
Therefore a business owner or employee who drives 20,000 KM for business every year would be entitled to receive $10,700 tax free once they provide proof via the logbook.
If the business does not keep a logbook, there might be little or no deductions allowed and the business might even be charged a taxable benefit.
- Keep a mileage log. Smartphone apps offer an easy way to do this.
- Remember to reimburse yourself with reasonable per kilometer allowances as they are tax free.
- Review the rules which apply to you and don’t ignore them as the CRA is taking steps to enforce them.
- Avoid using company vehicles at home.
Any questions or concerns? Get in touch with Syed A.Raza Professional Corporation. We will help you maximize your allowable deductions, offer alternative solutions and guide you through the complex world of income tax compliance.