Should You Own a Business Vehicle Personally or Through Your Corporation?
When it comes to business vehicle expenses, one of the most common questions entrepreneurs have is whether they should own or lease a vehicle personally or through their corporation. This decision has important tax implications and requires careful tracking of mileage and expenses.
The Canada Revenue Agency (CRA) closely audits vehicle use in businesses, so it's essential to understand the rules and maintain accurate records. Below, we outline the key considerations for each scenario.
Scenario 1: Vehicle Owned by the Corporation
If a corporation owns the vehicle, it can claim the following expenses:
- Capital Cost Allowance (CCA) for depreciation
- Operating expenses (gas, repairs, license fees, insurance, etc.)
However, CRA has strict guidelines on business use:
- Over 90% business use: All vehicle-related expenses can be claimed as business expenses.
- Less than 10% business use: No vehicle-related expenses can be claimed.
- Between 10% and 90% business use: Only a portion of expenses can be claimed based on business mileage.
Important Considerations:
- A detailed travel log is required to justify business kilometers in case of a CRA audit.
- Receipts for all vehicle expenses must be kept.
- If a shareholder uses a company-owned vehicle for personal use, they must report taxable benefits on their personal income and T4 slips. These benefits include:
- Standby Charge: A taxable benefit for having a company vehicle available for personal use.
- Operating Benefit: A taxable benefit for personal fuel and operating costs.
- If business use is greater than 50%, these taxable benefits may be reduced.
Scenario 2: Vehicle Owned by the Shareholder
If the vehicle is owned personally by a shareholder but used for business, the corporation can reimburse the shareholder for business expenses. The key requirements are:
- The shareholder must maintain a detailed mileage log to separate business and personal use.
- The corporation can reimburse actual expenses related to business use.
- Alternatively, the corporation can pay a non-taxable allowance based on mileage as long as it is considered reasonable.
- For 2025, CRA’s prescribed rates are:
- $0.72/km for the first 5,000 km
- $0.66/km for additional kilometers
What About Advertising and Business Use of Personal Trips?
Some business owners consider branding their vehicle with decals or signage to claim additional business-related expenses. Here’s what you need to know:
- The cost of advertising (e.g., decals, wraps) is deductible as a business expense.
- However, claiming personal trips as business-related due to advertising on the vehicle is unlikely to be accepted by CRA.
Final Thoughts
Owning a vehicle through your corporation may seem appealing, but it comes with strict record-keeping and potential taxable benefits. For most business owners, personal ownership with a mileage-tracking system is the simplest and most effective approach. Be sure to track both personal and business mileage carefully and consult with a tax professional to ensure compliance.
Need help navigating vehicle expenses for your business? Contact us today to discuss the best strategy for your situation!