Before we can understand if it is better to own a vehicle inside or outside of a company, we first need to look at the rules regarding company owned vehicles.
The Canada Revenue Agency (CRA) breaks down vehicles into 2 categories – motor vehicles and passenger vehicles. Motor vehicles do not have cost limitations and are not subject to the same rules as passenger vehicles. Passenger vehicles have cost limitations and can have significant tax consequences for the shareholder(s).
A coupe, sedan, station wagon, sports car, or luxury car is always a passenger vehicle.
A pickup truck or van used to transport goods or equipment in the course of business seating 1 to 3 people (including the driver) is considered a motor vehicle if in the year of purchase or lease it is used more than 50% of the time for business use.
A pickup truck with extended cab, SUV or van used to transport goods, equipment, or passengers in the course of business seating 4 to 9 people is considered a motor vehicle if in the year of purchase or lease it is used 90% or more of the time for business use.
All other vehicles not mentioned are considered a passenger vehicle.
A key detail with the designation of a vehicle as a passenger or a motor vehicle is that it is determined in the year of purchase. For example, if an extended cab truck is purchased on the last day of the fiscal year and is used that day 90% or more for business it will be considered a motor vehicle regardless of whether or not it is used 90% or more for business thereafter.
Rules for Passenger Vehicles
As mentioned, if a vehicle is considered a passenger vehicle, there are limitations that are placed on it. Note that motor vehicles do not have these limitations. Limitations on passenger vehicles include:
The standby charge and operating benefit can have a significant impact on the shareholders’ loan balance in the company. These taxable benefits will have to be repaid or will reduce the shareholders’ loan balance.
As you can see, there can be a significant restriction on the CCA on passenger vehicles as new SUV’s and extended cab trucks can cost well in excess of $30,000. There is also the large annual taxable benefit to the shareholder(s) with the standby charge and operating benefit. These factors make it very costly to own a passenger vehicle inside of a company.
If the vehicle is owned in the company, it is also important to maintain a log book tracking the personal and business use of the vehicle. This is to help support the business use of the vehicle should CRA ever question it.
If a vehicle will be used in the business and will be considered a motor vehicle, it should be owned by the company.
If a vehicle will be used in the business and will be considered a passenger vehicle, it should not be owned by the company. Rather, it should be owned by the shareholder(s) and a business use of the vehicle should be charged to the company. If funds are required out of the company to purchase the vehicle, this can be achieved with a variety of methods, each of which will likely be more beneficial than having the company own the vehicle.
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