Vehicles – Deductible or Taxable?
Geoff Garland, Tax Partner
Building Connections
A question I am often asked by clients and associates is “Can I claim my vehicle for taxes?” The answer like so many others in income tax is “it depends”.
Where you own or lease your own vehicle and you use that vehicle for business purposes you may be entitled to deduct the portion of expenses related to the business use of your vehicle. In order to be entitled to a deduction your employer must provide you with a form T2200 Declaration of Conditions of Employment. This form provides the Canada Revenue Agency (CRA) with confirmation that you are required to use your personal vehicle for business purposes and indicates if you have received any reimbursement of these expenses. Your employer can pay you as an employee $0.52 per kilometer for the first 5000km of business travel and then $0.46 for any additional kms. These amounts are deductible to the employer and are not taxable to the employee. When you receive a non-taxable allowance you are not entitled to claim your vehicle as a deduction. If you do not receive a reasonable tax-free allowance then you may claim your vehicle. When you do so it is important that you maintain a log of all of your business kms and your total kms for the year as well as all of your receipts as CRA will often wish to review these types of expenses.
If your employer (including a corporation which you own) provides you with a vehicle, its availability for personal use is a taxable benefit to you, and a standby charge will be included in your income. Where a corporation owns the vehicle, the standby charge benefit to you is 2% per month of the car's original cost. For leased cars, the benefit is 2/3rds of the corporation's monthly lease costs (excluding insurance). In addition, where your employer also pays all of the operating costs of the vehicle then you will also receive an operating cost benefit. This benefit is calculated as the lesser of ½ the standby charge or $0.24 per km of personal use. You may be entitled to a reduction in the standby charge where your business use of the vehicle is more that 50% of the total kms driven and your personal kms are less than 20,000kms.
For example: Let's assume that you work for a corporation that has provided you with a car costing $30,000 and you are regularly required to drive for business. During the year, you drive 25,000 kms for business purposes and 15,000 kms for commuting and other
personal travel. Therefore, 62.5% of you travel is for business purposes. Therefore, your benefit would be $7,200 per year ($30,000 x 2% x 12 months). As you are entitled to a reduced standby charge as you have met the 50% test, and the distance traveled for personal purposes is less than 20,000 kms your standby charge benefit will now be $5,400 ($30,000 x 2% x 12 x 15,000/20,000). Where the company also pays the operating costs your will also have a taxable benefit included in your income of either ½ the standby charge of $2,700 or $3,600 ($0.24 x 15,000km).
What makes more sense? Own your own vehicle or have your employer own the vehicle? Many employees have found that it is more tax efficient to own their automobiles personally, and for their employer to reimburse them for business travel. There are a number of factors that need to be considered, such as what percentage of business use will you have, how much does the vehicle in question cost, how many personal kms will you drive, do you want to track all of your expenses and maintain a detailed log, just to name a few. Therefore, there is no one universal right answer to this question.
Ultimately, as you can see, there are a number of considerations when making the decision to use your personal vehicle for business or accept an employer provided vehicle. See your professional tax advisor on how each choice may affect your income tax situation.
Geoff Garland is a Tax Partner at BDO Dunwoody LLP, with over 8 years experience as a CA, and provides tax advice to entrepreneurial-minded businesses. With experience in general practice, Geoff is knowledgeable regarding tax compliance and planning services, and works out of the Winnipeg office. Over the years, Geoff has provided a range of tax and related services to a wide range of clients in the automotive, agriculture, manufacturing and construction industries. He works with clients to spark new ideas and find innovative solutions. He can be reached at 204.926.7263 or ggarland@bdo.ca.
