Company Vehicle Compliance As An Entrepreneur
Posted On: 09/12/21 - 0

Are you aware of all the CRA rules associated with company vehicle compliance as an entrepreneur? Common mistakes that we see in our office often involve the use of a company vehicle.

Company Vehicle Usage

Often, we see entrepreneurs that own a business also using a company vehicle to conduct business. In many instances, the company doesn’t own the vehicle. Instead, it’s been set up as an asset of the corporation but it hasn’t been sold to the company.

Tax payers need an automobile to use for getting to and from work. There are several instances where the business owner needs a vehicle to conduct business. It’s important to the CRA that this automobile has been set up in the corporation. It is important to properly deduct the expense that is related to the business and not the personal portion. One can’t purchase an automobile under our business name and use it for personal purposes and still expect to have a tax deduction. What can complicate matters, is we need to make sure that all the rules that are set forth by the CRA are being followed. This ensures that we are taking the proper amount of tax deductions for the business portion of our automobiles.

What Happens if The Company Vehicle Is Not Set Up Correctly?

If the company vehicle is not set up properly, that benefit ends up having to be taxed as potential income that the owner didn’t declare. Or, it  may be that the vehicle  was over claimed as an expense.

For example, a realtor uses their car for work. It’s an expensive expense because they’re all over the city visiting clients, showing homes, etc. It’s expected that a realtor needs an automobile to conduct their business. These are usually expensive vehicles and they put on a lot of business mileage. If an official log hasn’t been prepared to indicate business kilometers, and the CRA does an audit, the realtor better have an official log book in place. If they can’t prove what the business percentage versus the personal percent is, the CRA could simply deny the expense.

When Could An Audit Take Place?

What’s important is that the CRA doesn’t look at things six months after we file our tax return. It could be many years after the fact because there are many random audits across Canada each year. This means many years of automobile expenses that are being questioned could potentially be denied. This could be a very expensive mistake for you. It’s pretty straight forward to make sure that you are recording your business mileage correctly. You save yourself plenty of stress and money down the road in the event of an audit.

Usually, it’s company vehicle usage that is one of the first things that is picked up in an audit. Even something as simple as a payroll audit. The CRA will check to see the shareholder benefit on the personal use of vehicles. That’s when they will check the business use and the personal portion of the automobile.  This is why it is so important to have an official log book and have total transparency. If you don’t, these could become costly mistakes.

Official Log Books

When it comes to an audit, often entrepreneurs do not have official log books tracking business versus personal mileage. The business owner gets so busy working in the business that they don’t make time to track their mileage. There are many new apps that make this task much easier to track than doing it manually, which can be a real nightmare. 

Company Vehicle As A Taxable Benefit

There are allowances and benefits which are classified as taxable benefits. These must be included in the taxable income on a T4 tax information slip.  If you own the car, the company reimburses you for its use at a rate set out by CRA. If the company owns the car, it pays all expenses and deducts them for tax purposes. But, any personal use of the vehicle is deemed a taxable benefit.

Automobiles are one of the most complex thing to deal with for a business owner. You need to make sure that you have it properly set up and in compliance with the rules that the CRA (Canada Revenue Agency) has associated with automobiles.

If you need assistance with setting up your vehicle correctly in the business, please contact us.

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Edmonton, Alberta.
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780.482.7297