The shareholder of a corporate client use company vehicle for personal use (around 20%). I reclassify the 20% of all the vehicle expenses (gas, insurance, repairs) to shareholder loan account. Is this the correct way? I see detailed rule and calculation for employee benefits when employees use company car for personal use, but not for shareholders. Can someone share their understanding and experiences?
Thanks!
You have to use standby charges. It’s required when the company owns the vehicle and either the shareholder or other employees use it for personal driving around. The CRA doesn’t like corporate vehicles that are partly used for personal use and the standby charges can be quite punitive depending on the vehicle.
Also, don’t forget the GST/HST calculation. It’s done in 2 parts. I record it as a debit to vehicle expense and a credit to HST payable. Not a debit to S/H account as he/she has already absorbed that as part of the taxable benefit. You’ll get extra points for that in an HST audit.
I’ve had customers audited about this in the past. Unless there have been changes, a shareholder has custody or access to the company passenger vehicle, is considered to receive a taxable benefit equal to 20% of the original cost of the vehicle, no matter how old, even if he does not use it.
I tell my people to by the car in their name and be reimbursed on a millage rate (not taxable) for using it for company purposes. Usually comes out ahead.
The standby charge alone is 2% per month of the original cost, including tax. That’s 24% per year. In a little more than 4 years, the taxable benefit equals the original cost. Plus the per km charge. Far better to own the vehicle personally and take an allowance at the maximum CRA rates. It’s impossible to lose money on that plan.
Thanks everyone! I have found the CRA link to calculate benefits (standby, operating and GST/HST). This is for both employees and shareholders.
This. Always this.
Easier. Less hassle. Log required in both cases (MileIQ).