Congratulations, you’ve made the decision to purchase a new vehicle! However, you’re now faced with the choice of putting it under your name or your company’s name and weighing up the pros and cons for each side.
Before committing to what name to put on the ownership papers, take stock of your reasons for purchasing. Understanding the primary purpose of the vehicle, and how/when it will be used, will make deciding what name to scrawl across the title a lot easier.
Business Ownership
Buying a vehicle under your company’s name allows you to deduct all the costs associated with running and maintaining the vehicle on your income tax. It also allows you to claim capital cost allowance on the purchase and claim some benefits based on (1) the current market value of the car (including depreciation) and (2) any use of the vehicle for non-work-related activities.
The general rule of thumb is that the more you use the car for personal reasons, the less favourable putting a vehicle under your company name becomes.
Too much personal use will impact the number of deductions you’ll be able to make while also affecting your ability to collect certain benefits.
There are three different scenarios where we would recommend putting the vehicle in your business’s name. This includes if it’s a:
- Non-passenger vehicle (only 2 seats and the rest of the space for storage) and you or your employees will be driving to different work sites daily in it.
- Passenger vehicle (seating for 2+ riders) but you have another vehicle solely used for personal use.
- Passenger vehicle that is primarily designated for business usage (over 90%) and won’t be driven to and from your home every day.
Keep in mind that if your vehicle is owned in the company, it will be important to maintain a logbook detailing each trip made. You can find the requirements for keeping a CRA approved regulation logbook here. At the very minimum it should contain which trips were made for business and which ones were non-business related, as this will help support your business should the CRA ever audit your company return.
Personal Ownership
Many business owners use their vehicle for personal and work purposes.
If you’re using a vehicle for reasons that lay outside the three listed above, it’s going to be more beneficial to you put the ownership papers under your personal name. Doing this allows you to reap personal tax benefits that are often more beneficial when you have a vehicle that is joint use.
In addition, you should keep in mind that just because the vehicle isn’t in your company’s name, it doesn’t mean that you or your employees can’t use the vehicle for work reasons or make payments out of the business bank account.
Your company can issue a motor vehicle allowance for employees using a personal vehicle. This allowance isn’t taxable when travel is considered reasonable for work purposes, so ensure anyone who is using the vehicle is detailing their trip in the logbook.
If you choose not to issue an allowance, you and/or your employees will still be able to claim a deduction while filing income tax.
At the fiscal year-end, if your company paid more than it should based on your business usage, then you simply repay the difference. This may include deducting it from your shareholder loan and/or adding it to your wages/dividends, depending on how you take payment from the company.
Still Have Questions? We’d Be Happy to Help!
At Isaac Achal Professional Corporation (IAPC), our chartered professional accountants want to make sure that you’re never paying more tax than you should be – especially when it comes to your vehicle.
If you’re still contemplating what name to put your new car under, reach out to us. We would be happy to detail your options so that you can feel happy and confident in your decision moving forward.
