Another issue is whether the company or shareholder should be the registered owner of an automobile. If it is clearly used exclusively in a company’s business then ownership should be registered in the company’s name. If a family has two automobiles, it could be argued that one is used exclusively by the company and the other for personal use. Again, the vehicle used exclusively in the company’s business should be registered by the company. Note: a vehicle used exclusively used for company business should be left at the company’s parking lot/garage, especially overnight and week-ends, in order to avoid it being considered “available” for personal use, even if it is never used personally.
However, if a family has one automobile or if an automobile cannot be identified as being exclusively used in a company’s business, I recommend individuals directly own their automobile. This means foregoing the immediate benefit of claiming HST paid on the vehicle in company’s ITCs. However, over the long-term, it is my belief there are other considerations which outweigh this loss.
If claiming ITCs on a new vehicle is important, then consider transferring ownership to the shareholder after (say) two years, when value of the vehicle has dropped considerably. Also, keep in mind CRA caps the purchase price of a vehicle at $30,000 plus taxes. Therefore, the maximum HST refund in Ontario is $3,900 ($30,000 x 13%).
Personal ownership of a vehicle avoids the “Standby Charge” issue. A company owned vehicle that is available to an employee requires the company to add automobile benefits to the employee’s T4. The calculation (2%/month) is based upon the purchase price. There are other calculations in the Standby Charge amount, such as personal mileage and repayments made by the employee.
Expenses of a personal vehicle used by an employee in the course of his/her duties maybe deducted by the corporation and reimbursement is usually tax free to the employee. The quickest and easiest calculation is to multiply business mileage by the approved CRA automobile allowance rates. For 2015 rates are:
55¢ per kilometre for the first 5,000 kilometres driven; and
49¢ per kilometre driven after that.
Choosing the automobile allowance avoids having to maintain detailed records and receipts of actual expenses, which most clients have difficulty tracking.