24.05.2020
Corporate tax
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For many entrepreneurs, filing a tax return can quickly become rather complicated. Nevertheless, everyone should know what deductions they are eligible for. For example, did you know that you can get tax deductions for the use of a business vehicle?

In this article, discover some tips on how to take advantage of these deductions as a business owner!

Keep a record of your vehicle expenses for tax deductions

If you want to take advantage of potential tax deductions for the use of a business vehicle, you must remember to keep all your receipts, which will serve as proof for the Canada Revenue Agency (CRA) and Revenu Québec. You should also keep an up-to-date log that records all of your automobile travel for work purposes. You should record the date of the trip, the destination, the reason for the trip and the number of kilometres travelled.

This record will be another important proof of the use of your vehicle for business purposes. Otherwise, government officials from the CRA or Revenu Québec may decide to credit you with only a small percentage of your expenses, or even nothing at all. A corporate tax specialist can help you build this log.

Taxable benefits for business vehicles

There are a number of tax benefits related to buying, leasing and using a business vehicle that may help you reduce your business taxes. Here are some of them.

Capital cost allowance

If the business owns the vehicle (purchased, not leased), capital cost allowance is an amount that is deductible as an allowable motor vehicle expense under government standards. These expenses include the costs of operating the company vehicle, such as repair and maintenance costs, gas, registration, licence, and lease fees (if applicable).  This amount is actually a percentage, set by the CRA based on the motor vehicle property, that reduces the cost you paid for the company vehicle each year. Any other expenses related to the purchase of the vehicle are also considered in this calculation.

Standby charge benefit

If you provide a company vehicle to one of your employees, you will have to calculate the value of the standby charge for personal use of the vehicle. The calculation of the standby charge benefit is different if you own or lease the automobile.

Calculation if you own the vehicle

If you own the vehicle, the calculation is as follows:

  • Cost of the car (including taxes), MULTIPLIED BY
  • 2%, MULTIPLIED BY
  • The number of days in the year that the vehicle is available to the employee / 30 DAYS.

Calculation if you lease the vehicle

If you lease your company vehicle, you will have to calculate the operating costs as follows:

  • Cost of the automobile (including taxes, but excluding insurance costs included in this cost), MULTIPLIED BY
  • 2/3, MULTIPLIED BY
  • The number of days in the year that the vehicle is available to the employee / 30 DAYS.

Operating cost advantage

Operating costs include gasoline, oil, maintenance and repair costs, permits and insurance. Whether you pay all or part of these costs, you will have to determine the operating cost benefit based on the optional or flat-rate calculation. Using the optional calculation requires you to meet certain conditions.

If a car is provided to the company by the shareholder

If the shareholder or executives use a personal car for company business purposes, they will, of course, be required to keep a mileage log, and then be reimbursed a reasonable mileage allowance. The Revenue Canada site publishes the maximum per-kilometre allowance that can be deducted on an annual basis. However, keep in mind that this is the maximum deduction! So be reasonable if your car costs less.

Contact T2inc for an unbeatable accounting and tax service

In summary, there are several possible deductions for business vehicles that you may benefit from if you and your employees who use your automobiles keep a travel log. Understanding the various tax benefits will help you make a more informed decision about buying or leasing a vehicle for your company.

At T2inc, our tax accountants have the resources to help you find the best tax solution for your company. If you need help and guidance in obtaining deductions for a business vehicle, contact us!

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