CRA’s latest corporate review project… Auto expenses.
Have you received your review notice from CRA in regards to your 2016 and 2017 Automotive expenses? If not, you could be receiving one in the backhalf of 2019. The items CRA are requesting are far more in-depth than in years past when it comes to vehicle-related expenses. There is a HEAVY emphasis on what percentage of your vehicle is used for business versus personal. Let’s start with what CRA is requesting on the Automotive Review:
- A detailed list of all your vehicle-related transactions for the ENTIRE FISCAL year for both years
- A copy of your 10 largest receipts to substantiate the transactions in the fiscal year
- A copy of every receipt related to your vehicle expense in the third month of 2016 and 2017
- A list of vehicles related to the expenses
- If the vehicle is leased, CRA requires the make and model
- If the vehicle was used for personal use, they want to see either a logbook or how you tracked the personal use of that vehicle
- Last but not least, they want an explanation as to how you accounted for the business and personal use of the vehicles. (auto benefit on a T4, chargeback the shareholder loan etc.)
If you have not yet received a review, now might be a good time to start looking for those receipts as often times with CRA reviews, it’s not the legitimacy of the expense that gets questioned and overruled, it’s the fact shareholders do not have the records to substantiate the expense. If you can’t “find it” you can’t “claim it”.
- If you are wondering “should I own the vehicle in the company or should I own it personally?” The following information can help make the decision for you:
- How many kilometres will you drive for business and for personal use?
- What is the purchase price of the vehicle?
- If leasing, what are the lease costs?
- What are your expected operating costs?
FREE ADVICE Courtesy of Chopek & Associates*:
It is important to understand what is considered personal use. The biggest misconception is that driving from your house to your place of work is businessuse, in fact, it is personal use of the vehicle.
Personal use driving consists of:
- Driving from your home to work
- Vacation travel
- Any driving for personal conduct
A log is very important to maintain all your business kilometres driven in the year. This use to be a daunting task, however now there are many great apps that can help us keep track of our business mileage.
Vehicle Ownership – Personally
In this scenario, the use of the vehicle is paid to you through a tax-free allowance using CRA mileage rates which include $.58/km on the first 5,000 km’s driven and $.52/km’s on any additional km’s driven. Under this method, all vehicle-related expenses such as fuel, insurance, repairs and maintenance, loan payments etc must be paid personally.
Vehicle Ownership – Corporately
When a vehicle is owned by the corporation, the company has the benefit to claim CCA (depreciation) or lease payments, along with other vehicle-related expenses mentioned above. Typically, vehicles owned by the corporation have some personal use, it’s important to understand how much because the personal use must become a taxable benefit to you and recorded on your T4.
Usually, when a vehicle is used 90% for business use it is more beneficial to have the vehicle owned by the corporation, especially if the vehicle is newerand more expensive because of the CCA benefit and loan payments.
When your business use drops below 90%, the standby charge and operating benefit recorded on your T4 may become greater than your deductions over time making it more beneficial to own the vehicle personally.
We cannot forget to factor in the funds needed to either finance the vehicle or purchase it outright, although financing the vehicle is not a tax deduction it does reduce the amount of money needed to be withdrawn from the business and taxed on your T4.
If you are thinking of purchasing a new vehicle and would like to make the best decision for your situation, please give us a call at 780-433-3611 or email and we can help you navigate the complexity and multiple factors to be considered in making the correct decision.