When it comes to vehicle ownership in a small business, the decision between having a shareholder own a vehicle personally versus having the corporation own the vehicle can significantly impact tax obligations and financial efficiency.
Understanding the Basics of Vehicle Ownership
Before diving into the specifics, it’s essential to understand the fundamental differences between personal and corporate vehicle ownership:
- Personal Ownership: The shareholder owns the vehicle personally and either:
- Pays for all the vehicle’s operating expenses and claims a tax deduction for the business portion of the vehicle’s usage on their personal tax return, or
- Pays for the personal portion of the vehicle’s usage and charges the corporation for business use. The corporation claims the tax deduction for the business portion of the vehicle’s usage.
No taxable benefit is added to the shareholder’s income under either personal ownership option.
- Corporate Ownership: The corporation owns the vehicle, and the shareholder uses it for business and personal purposes. The corporation claims the expenses related to the vehicle, but the shareholder will incur a taxable benefit for personal use.
Under both personal and corporate ownership scenarios, it is necessary to keep records of vehicle expenses, as well as kilometres driven for business vs personal purposes.
Personal Vehicle Ownership Considerations
When a shareholder owns the vehicle personally, there are several advantages. First, they avoid needing to calculate and report a taxable benefit relating to the vehicle. The taxable benefit amounts are discussed in more detail below and can escalate quickly depending on the circumstances.
Second, the shareholder can choose to be reimbursed by the corporation for the business portion of the vehicle’s usage, which can help with personal cash flow.
Third, depending on the shareholder’s personal circumstances, if the vehicle is being financed, there could be a better rate available for a personal vehicle loan as opposed to a corporate vehicle loan. This should be discussed with the lender to verify. Personal auto insurance rates could also be lower than commercial insurance rates – check with your insurance company or broker.
The disadvantage of having the shareholder own the vehicle personally is that the vehicle needs to be purchased with personal funds instead of corporate money. Any amounts withdrawn from the corporation to purchase the vehicle would be income to the shareholder.
Corporate Vehicle Ownership Considerations
Corporate ownership has the advantage of being able to use corporate money to fund the purchase of the vehicle.
Corporations registered for GST/HST might also be able to claim an Input Tax Credit for the purchase of the vehicle, subject to certain maximums, depending on the percentage of business use.
The disadvantage to corporate ownership is the taxable benefits that need to be calculated and reported by the shareholder. These can be cumbersome and expensive.
Taxable Benefits: Standby Charge and Operating Cost Benefits
When the corporation owns the vehicle and the vehicle is available for the shareholder to use personally, taxable benefit amounts for the standby charge and the operating cost benefit need to be calculated and reported each year. These amounts are the same as what is used to calculate the benefit when a company car is made available to a third-party employee for personal use.
The standby charge is calculated using a formula provided in the Income Tax Act that takes into account the cost of the automobile, the number of days it is available, and the distance driven for personal use. There is a reduction available when business use of the vehicle is at least 50% and fewer than 20,004 km per year are driven for personal use.
The operating cost benefit is usually calculated using the fixed rate applicable for the year in question (33 cents per km for 2024). Alternatively, if the business use is more than 50% and the employee files written notice electing to use the alternative method to calculate the operating cost benefit, this amount can be reduced to 50% of the standby charge.
Let’s consider an example of a vehicle owned by a corporation with a total cost of $60,000 (including taxes), and the vehicle was available to the shareholder for all of 2024. The taxable benefit amount under different business use scenarios would be as follows:
| Scenario 1 | Scenario 2 | Scenario 3 | Scenario 4 | |
| Business km driven | 18,200 (91%) | 22,001 (50%) | 4,000 (40%) | 10,001 (50%) |
| Personal km driven | 1,800 (9%) | 21,999 (50%) | 6,000 (60%) | 9,999 (50%) |
| Total km driven | 20,000 | 44,000 | 10,000 | 20,000 |
| Standby charge calculation | 2% x 60,000 x 12 months | 2% x 60,000 x 12 months | 2% x 60,000 x 12 months | 2% x 60,000 x 12 months |
| Standby charge taxable benefit reduction | Pro-rated to 9% personal use | None as personal km exceed 20,004 | None as business use less than 50% | Pro-rated to 50% personal use |
| Standby charge taxable benefit amount | $1,296 | $14,400 | $14,400 | $7,200 |
| Operating cost benefit | $594 (33 cents per personal km) | $7,200 (if properly elected as this is less than 33 cents per km) | $1,980 (33 cents/km) | $3,300 (33 cents/km) |
| Total taxable benefit | $1,890 | $21,600 | $16,380 | $10,500 |
The taxable benefit amount increases sharply in situations with higher personal use. It is also worth noting that the calculation is based on the vehicle’s cost, not its current value. With an older vehicle, it is possible for the taxable benefit calculation to be higher than the market value of the car itself.
The shareholder can avoid or reduce the taxable benefit that needs to be reported if they choose to reimburse the corporation for some or all of the standby charge and/or operating expenses of the vehicle.
Which Option Should You Choose?
The decision between personal and corporate vehicle ownership is not one-size-fits-all. It depends on the specific circumstances of the business and its shareholders, and the extent of business use.
Most often, after running the numbers, it is more advantageous for the shareholder to own the vehicle personally. However, corporate ownership might make sense if the vehicle is used more than 90% for business purposes, and the increased interest rate and insurance costs for a corporate-owned vehicle are not significant. If you are considering purchasing a car or truck and think it might make sense for your corporation to own it, please contact your McCay Duff LLP consultant so that we can give you advice for your specific situation.
Contact McCay Duff LLP in Ottawa for Your Accounting and Tax Planning Needs
At McCay Duff LLP, our accountants can provide services to support all tax filing. In addition, we can provide recommendations on making the most of the various tax benefits the CRA offers and reducing your business and personal income tax. To learn more about how McCay Duff LLP can assist you with tax planning, contact us online, or by telephone at 613-236-2367, or toll-free at 1-800-267-6551.
