The Canada Revenue Agency constantly assesses whether a vehicle is being used for personal or business purposes.  In the long run, it does not matter whether the company itself owns the car or if it is owned by the individual who owns the business.  The important factor is how much the vehicle is used for corporate business and how much for personal use.

When Can You Use The Vehicle?

As long as the owner of the business owns the car, that owner may charge or expense the company a portion of the costs associated with using that vehicle for business purposes.  It does not make much difference whether the company owns the car and the individual operates it; the tax situation is very similar.What happens, however, when the owner of the business owns the car but bills all of the company's expenses to that vehicle.  However, it should be noted that the company is supposed to charge the shareholder back for the use of the car on a standby basis (what is known as a standby charge).A personal usage rate is calculated by comparing the amount of time a vehicle is used personally with the total amount of miles driven by that vehicle throughout a given period of time (for example, a year).

How Can a Standy-by Charge Be Calculated?

Assuming that the vehicle travels a total of 10,000 kilometres during the year, 4,000 of those kilometres will be for personal use and 6,000 will be for business, the total amount of expenses for the vehicle will be $5,000 for the year (insurance, gas, maintenance, depreciation, etc.)As a result, the company can write off 6,000/10,000 times $5,000 for a total of $3,000, and the individual will be liable to pay 4,000/10,000 times $5,000 for a total of $2,000.  In the scenario where the company pays all the expenses for the vehicle, the $2,000 earned by the shareholder will either be considered a shareholder loan and depending on the shareholder's situation, it will either be added to tax benefits as a shareholder dividend or income as a shareholder benefit.

CRA looks for mileage problems

Justification for the mileage of a vehicle is one thing that the CRA looks for.  In accordance with the rules, it is required that a log of the mileage for the entire year is kept.  Nevertheless, some auditors will request a sample of usage of the vehicle over a period of two to three months to justify the vehicle's use. For this purpose, you could hire an accounting firm that can help you track all your personal and corporate expenses throughout the year, or you can do it yourself. An auditor has the discretion to disallow any mileage expense if one does not keep a log of the mileage or to use a subjective judgement to allow the expenditure.

Conclusion

Your mileage expenses should be tracked by a professional accounting firm or kept on your own. You can contact us for this purpose, and we will ensure that all your tax documents are in order and filed promptly. Because CRA continuously checks whether a vehicle is being used for business purposes versus personal use, records must be kept properly.  In the absence of these records, CRA auditors will find it challenging to determine what is "personal use" and what is "business use."