A little tax edition “Jeopardy” feature for you today (insert theme song here – we know you know it).
Before we get to the Daily Double, what are you wagering?
Here’s the question – Should I buy/lease my vehicle in my corporation or personally?
Our answer – What is “How much business usage do you expect to incur from year to year?”
Don’t worry though. Either way, there is a deduction available. But you MUST keep a record of the business mileage.
As for the wager, there’s some exposure in the amount of business usage (which can be challenged by CRA). Also, if the business usage changes a lot from year to year, and the vehicle is corporately owned, your personal income inclusion could have some costly tax implications. Check out the flowchart below for an example.
*To keep this high level, we will use a vehicle purchase of $30,000 and assume corporate or personal funds are available for the purchase. Our analysis covers a 3-year period. Also, we will use a 25% corporate tax rate and the highest marginal personal tax rate of 48% for consistency purposes. GST implications are excluded.
If you have business usage closer to 50% and expect it to fluctuate below 50%, we do not recommend corporate ownership. Keep in mind that the personal income inclusion can be reduced if operating costs are repaid to the corporation within 45 days of the end of the year.
How to calculate the vehicle operating costs:
Option 1 – Track all receipts and claim a portion of actual costs (i.e. fuel, repairs, insurance, depreciation or lease costs), or
Option 2 – Use CRA’s mileage rate (currently $0.59/km for the first 5,000 km and $0.53 thereafter) to compensate for the use of the vehicle.
In order to use either option, you MUST track the mileage.
- Use an app to track mileage (Mile IQ or QuickBooks have great options) to keep it easy and convenient
- Consider a second vehicle for personal usage
- Capital Cost Allowance (depreciation) on purchased vehicles is generally limited to $30,000 over the life of the vehicle, even if you spend more
- Monthly lease costs are limited to $800/month plus GST
- Taxable benefits for the personal usage will require T4 preparation and filing.
- Automobile Benefits Online Calculator
As always, each situation can vary and that’s what we are here for. When we chat about your circumstances, we will consider things like: other vehicle availability, current income levels, cash flows, actual business usage and, if you’re chatting with Kevin, make, model and color (the priorities, for sure).
And one more time, because it’s super important, keep a record of the mileage!