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Keep Detailed Logs
To Prove Business Use
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You may need some help navigating if you're a Canadian shareholder or employee of either a domestic or foreign business and have a company vehicle available for personal use. The tax regulations and calculations are like a maze of cobblestone streets.
There are two types of benefits related to the use of a company auto and you may have to pay tax on both:
1. Standby charges: These are calculated at the rate of two per cent of the capital cost of the vehicle per month (24 per cent a year) for company-owned autos or two-thirds of the cost of leasing the auto. This does not include insurance costs. The capital cost of the vehicle is calculated as the purchase cost, including PST and GST, even if the employer has claimed input tax credits or other reimbursements.
2. Operating benefits: The operating benefit is based on a charge per Km of personal use. This is to account for the costs paid by the company related to personal use of the vehicle. Operating costs include gas, oil, repairs, maintenance, licences and insurance. They do not include interest, capital cost allowance, or parking. The calculation of the operating benefit changes annually. Check with your tax expert for the latest figure.
Those are the basics. But it doesn't stop there.
You may be subject to a standby charge even if you don't use the car for personal reasons. It simply has to be available for you to use. There must be personal use for the operating benefits to apply.
The Canada Revenue Agency (CRA) requires a detailed log of personal and business use. If you don't supply one, you can be assessed for 100 per cent personal use of the vehicle.
| However, there are a couple ways to reduce the charges and benefits: Standby charges If the business use is greater than 50 per cent and total personal use is less than 20,000 km per year, you can get a reduction. The company must certify in writing that you were required to use the auto for business. To get the reduction, you multiply the regular standby charge by the ratio of personal use kilometres divided by 20,000 kilometres. If you sell or lease new or used automobiles you are eligible for a special reduction. Operating benefits If personal use is more than 50 per cent, you can set the operating benefit at 50 per cent of the standby charge. You must inform the company of this in writing before year-end. Generally, this is an advantage only when the standby charge is considerably reduced due to limited personal use. Automobile salespeople get a special reduction. |
To simplify matters: If you own the automobile and pay the expenses personally, you can charge the company a reasonable amount per kilometre. The reimbursement is not taxable income. The company then deducts what it pays you as an eligible tax expense.
Every year, the Department of Finance publishes expense benefit rates for employees. The tax department accepts reimbursements based on kilometres driven at or below these rates as non-taxable to the employee.
The tax treatment of a company-provided automobile is complicated. Consult your tax expert to help calculate your benefits.
