Using a Vehicle for Business Purposes
One of the most common questions asked about doing taxes is how to include your vehicle uses in your tax preparation. Today, we will have a quick look at this and see who can include this in their tax return and how to it is done.
Using a company vehicle:
If personal use of a company owned car does not exceed 20,000 km annually and the car is used for business more than 50% of the time, a proportional standby-charge is allowed. For example, a car is driven 40,000 km. 25,000 is for business purposes and 15,000 for personal. The actual standby charge will be 75% of the regular standby-charge, or 15,000 divided by 20,000 for the standard standby-charge.
When both the company and the employee/shareholder have contributed to purchasing a car, the standby amount will be reduced by the amount paid by the employee/shareholder.
The standby-charge is calculated on the car’s original cost regardless of age. If it is an older car, a possible approach is to purchase the car from the company. However, a lease car is purchased at less than its fair market value, the difference is considered to be a taxable benefit and must be included in your income.
A standby-Charge may not apply under certain conditions. For example, if an employer has the policy where a car must be returned to the company premises after a business trip, the standby-charge should be prorated to exclude those days. However, if you voluntarily leave the car at the company premises after a trip, those days will probably count towards the standby charge.
As of 2011, an employee may choose to make a general declaration of 24 cents per km for personal use and 21 cents per km if your profession is as a car salesman.
If the car is used more than 50% for business, the deemed operating benefit may be one-half of the standby-charge as long as the employee notifies the employer in writing before the end of the year. GST/HST is deemed to be included in the operating budget.
Using a personal vehicle for business reasons:
The best thing you can do to ensure a full claim of your use of a personal vehicle for business expense is to keep a travel log. This should include relevant travel receipts to support the mileage claimed. To make things simpler when claiming mileage, in 2010, the CRA created a simplified method of reporting. The new system allows for car usage to be recorded for a three month period and then the used as an average to be distributed over the course of the whole year. However, this new method requires the quarterly sampling to be within 10% when compared to the corresponding base year.
Deductions for expenses such as gasoline, insurance, maintenance, etc. are also allowable as long as they are in proportion when compared to the kilometres claimed. In other words, you cannot claim 20,000 km of driving but then claim enough gas usage to drive 30,000 km. Even accidents that happen to your car, minus insurance proceeds, can be fully deductable as long as the accident happened when conducting business.
Employees that are required to pay their own automobile expenses are entitled to deduct business-related vehicle expenses. However, if the employee has been compensated for the travel by the employer than it is the employer that claims the benefit. Only one side can claim the expense so only one side can claim the benefit.
If you are an employer and your employee is being reimbursed for personal car usable for business reasons, the maximum amount that can be claimed is 52 cents per km for the first 5,000 km and 46 cents after that. On the other hand, an employee that receives a low allowance for km used for business purposes can simply include the allowance as income and then deduct the actual km as a business use themselves. However, the employee cannot refuse the allowance offered from the employer simply to write off the km on their own tax return. This may result in them losing the ability to claim the expense if the CRA find out that they have voluntarily refused the allowance.
For capital-cost-allowances (CCA), employees who use their own car for business reasons are restricted to $30,000 of the car costs on purchases made after 2000. This amount does not include any type of sales tax. The annual CCA allowance is 30% on a declining basis. The only exception to this is the first year of owning the car when the allowance is limited to 15%.
In conclusion, there are many factors to keep in mind when considering the tax implications of using a car for work purposes. Is the car the property of the company or of the employee/shareholder. Where ownership lies can make all the difference on how you will report the taxable benefits. Always be sure to speak to your accountant about use of any vehicle for business purposes and keep a travel log no matter who is the owner.