For many people, vehicle use is a frequent part of the work day, which means automobiles purchased or leased in a company’s name can come with tax benefits. On the other hand, there may be tax consequences that come with using a company car as a personal vehicle. If employees are driving the company vehicle, employers may be required to add a taxable benefit to the employee’s T4 each year. Providing professional accounting services for the past 10 years, we want to help you understand these benefits, consequences and how the Canada Revenue Agency defines automobiles for business use, take a look at the information below.
Defining Automobiles for Tax Purposes
The Income Tax Act sets clear definitions for exactly what can be described and taxed as an automobile. This is important to be aware of, because there are examples of motor vehicles that do not meet this definition, and are therefore taxed differently. The CRA defines an automobile as “a motor vehicle that is designed or adapted mainly to carry individuals on highways and streets and has a seating capacity of not more than the driver and 8 passengers.” This definition does not include large vans, pickup trucks or similar large sized vehicles that are used primarily to transport goods 90% of the time. With that in mind, we can think of automobiles as company cars and/or minivans used primarily to transport clients, employees or other individuals.
Restrictions and Benefits
The vehicles that are defined as automobiles by the CRA are subject to restrictions on maximum capital costs. For vehicle purchases, that cost is restricted to $30,000 plus HST, and lease costs are restricted to $800 per month, plus HST. There are also added benefits that are taxable for employees using these vehicles for non-business purposes. This benefit is available to the employee if the vehicle is controlled and available for personal use by the employee during the calendar year. If on the other hand, the employee only uses the vehicle for company purposes during the work day, and has no personal access to the vehicle the rest of the time, there is no taxable benefit. In this case, the vehicle is usually returned to the company owner’s residence, or business premises during off hours where it cannot be accessed for personal use. In order to convince the CRA that a vehicle’s sole purpose is to be driven for business use only, owners will need to keep accurate records of kilometres travelled and the specific reason for each trip.
Sometimes maintaining accurate records of this nature that meet the requirements of available-for-use benefits can be difficult. The best way to ensure you are maximizing your taxable operation costs with vehicles that are used for business and personal use, be sure to consult your CPA for information and assistance. To learn more, contact the experts at Genesa CPA today.