Automobile expenses is one of the highly audited expense items by Canada Revenue Agency (CRA). If you use your personal vehicle for business use or use car owned by your business for personal use, watch out of the issues below.
CRA will deny non-allowable automobile expenses, including leases, operating expenses and depreciation.
3 general expense restrictions for passenger vehicles:
#1 Leasing costs are limited to $800/month (as the price of your vehicle goes up, the amount of your deductible leasing expenses decreases – something to watch out for in a high-end vehicle).
#2 If you finance/own the car, Capital Cost Allowance (depreciation cost you can claim on your tax return) is limited to the first $30,000,
#3 If You finance the car, there is a $300/month limit on loan interest.
Further, if the car is owned or leased by the company and if the shareholder or an employee uses it for personal use, they are subject to two taxable benefits: A monthly standby charge of 2% of the cost of the vehicle or two-thirds of the monthly lease, as well as an operating benefit of $0.28 per personal use per KM.
If you use your personal car for business use, CRA allows your business to reimburse you $0.59 per kilometer (KM) for the first 5,000 km and $0.53 after that tax free. For example, if you drove 20,000 KM for business purposes for the year, your business can reimburse you $10,900 tax free. Of course, you have to have to have log to prove those milage are for business purposes.
The types of motor vehicle expenses you can deduct include:
– fuel
– maintenance and repairs
– insurance
– licence and registration fees
– capital cost allowance (see above)
– eligible interest (see above) you paid on a loan used to buy the motor vehicle
– eligible leasing costs (see above)
Recommendations:
- Keep a driving log. There are many apps available that makes it seamless. If you use QuickBooks Online, it has a milage log built in.
- Get a reimbursement from your business on a per KM basis as it is tax free.
- Don’t use company owned vehicle for personal use. It will cost you and it is significantly higher earners (top marginal tax rate is ~ 54% – 2021).
Ramana Shiva, CPA, CGA, LPA, is a partner at Oasis LLP focusing on tax and assurance. Contact him by email at ramana@oasisllp.ca or call 905 597 6455 ext: 2 for all of your accounting, tax and assurance needs.
At Oasis LLP we help business owners find what is at the end of the rainbow. With over 25 years of expertise in business advisory, accounting, auditing, and personal and corporate tax, we can help you navigate the accounting and tax world. We are located in Richmond Hill serving Markham, Richmond Hill, Vaughan, and Toronto.
