Most businesses have vehicles they use in their daily operations. To get the largest deduction for your corporate dollar, it’s important to understand how different types of vehicles are written off, and what the Canada Revenue Agency requires to support a vehicle’s business use.
Generally vehicles are written off over their expected life, with the entire cost of the vehicle eventually being written off. For passenger vehicles, the total amount that can be written off is limited to $30,000 (plus taxes). Additionally where a passenger vehicle is financed, interest on the purchase is limited to $300 per month, and for leases of passenger vehicles the maximum deductible amount is $800 (plus taxes) per month.
Vehicles considered to be used mainly to transport people rather than goods or equipment are called passenger vehicles. For cars they are considered to be passenger vehicles, regardless of use, unlike trucks, SUVs and vans. See Canada Revenue Agency’s site at http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns206-236/229/mtr/typ/dfntns-eng.html for a breakdown of what vehicles are considered to be passenger vehicles and how their business use impacts this determination. Please note the business use of vehicles in the year purchased impacts the determination of whether a vehicle is a passenger vehicle, as such it’s especially important that the use of vehicles in the year of purchase is at mainly to transport goods or equipment.
Documenting use of a vehicle
Vehicle expenses are only deductible where support is available for their business use. The best evidence to support the business use of a vehicle is an accurate logbook of business travel kept for the entire year, listing each business trip, the destination, reason for the trip and distance traveled. If a logbook has been maintained for a 12 month period previously, a logbook for a sample period may be accepted as support as well. See CRA’s site at http://www.cra-arc.gc.ca/whtsnw/lgbk-eng.html for further details regarding log books.
Where only a small amount of vehicle expenses are being claimed, invoices to support travel along with an appointment calendar stating addresses visited and why might be sufficient.
It is important to note that even if a vehicle is used fully for business, supporting documents for the use of the vehicle are still required. If supporting documents are not available, the full amount of expenses related to the vehicle could be denied.
Personal use of vehicle
Where a corporate vehicle is used personally, a taxable benefit could be required for the employee or shareholder. Canada Revenue Agency has an online calculator for the automobile benefit at http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/bnfts/tmbl/bnfts/clcltng-eng.html .
For shareholders, if expenses are considered to be for personal vehicle use, they could be denied as deductions by the company, and added to the income of the shareholder. As such, it is very important to keep good records of the business use of vehicle, especially where that vehicle has a mixed corporate and personal use.
So to get the most from your company vehicle:
- Before purchasing a car for your company, considered whether a truck or SUV might be more suitable, as it could result in significantly more tax savings
- Consider keeping a log or diary to support the business use of vehicles
- If vehicles are used personally, consider whether a taxable benefit should be included in income
The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.
Written by Gordon Guild – Manager, Tax Department
White Kennedy LLP – Chartered Professional Accountants