FAQ - Automobiles - Corporate vs Personal Ownership

• Self-employed individual (Proprietorship)
• Corporation
• CRA Links

Almost all business owners ask whether they should purchase a vehicle personally or purchase it through their business. This question is so case-specific that it very often requires a conversation with a professional advisor for fact-gathering purposes to provide appropriate suggestions and guidance. That said, some points to consider regarding automobile ownership in two common but different circumstances are:

Self-Employed Individual (Proprietorship)

• Business activity relating to a proprietorship is reported on a personal tax return. A proprietorship is not legally separate from the proprietor, so the ownership of a vehicle is maintained by the proprietor. The cost of the vehicle is reported on the personal tax return based on specific rules and the proprietor should keep receipts for all vehicle related expenses for the entire year. In addition, a log book needs to be maintained that details the total kilometers driven for the year, as well as those kilometers that are applicable to business activity. The resulting percentage is applied to the total vehicle expenses for the year, resulting in an applicable deduction for tax purposes.

Corporation

• A corporation is legally separate from its shareholders. A corporation can purchase assets and will have legal title to those assets. A corporation can also be granted debt to finance the purchased asset. There are, however, some considerable risks to corporate ownership of automobiles that must be carefully considered. Automotive ownership by a corporation should be discussed with your trusted professional advisor prior to making a purchase.
• There are certain situations that are very clear regarding the use of the asset and the appropriateness of the related corporate ownership. For example, a vehicle purchased for delivery purposes, such as a cargo truck or a cube van, has little to no personal application and therefore, since the use of the vehicle specifically applies to the corporation and the revenues the corporation derives, corporate ownership of the automobile, in this case, is appropriate.
• In other circumstances, corporate ownership of a passenger vehicle, for example, can pose significant tax risks should CRA review the situation and support regarding the business application of the vehicle is challenged. Without appropriate support for the business use of the vehicle (that clearly has the potential for a personal component regarding its usage), the CRA could assess taxes through calculations for a standby charge and operating benefit which can be quite punitive to the shareholder. Depending on the type of vehicle, whether the vehicle is leased or purchased, the CRA also has limits on the value considered appropriate for current or future deductions.

CRA Link for More Information

• Vehicle Definitions Chart