I am seeing more and more shareholders purchasing vehicles in their names to expense all the vehicle expenses (i.e. gas, insurance, R & M, etc.) through the corporation. I have a new client whose vehicle is in his personal name, he has deducted vehicle expenses and capitalized the vehicle $75K through the company.
I am missing something. If the vehicle is being used 100% for the company, shouldn’t it be registered in the corporation’s name?
It should be - it is not appropriate to have it licensed to the personal name while capitalizing the vehicle cost. If it is owned personally, it should be leased to the corporation. He is missing out on his GST/HST refund.
Woah. This is so far offside it’s almost silly.
Property that is not registered in the name of the corporation cannot legally be capitalized within the corporation. (Clearly does not apply to small tools, furniture etc and similar things which have no legal registration.)
Leasing the car to the corporation, while possible, just opens up a rat bag of things you don’t want…GST on the lease, is the price FMV or not?..vehicle is well over the cap cost limit and so may the lease be…taxable benefit?..blah blah blah.
Do what everyone else (smart) does: get MileIQ or a similar vehicle mileage tracker, record the use, document it properly and charge the mileage back to the corporation at CRA stated rates. Includes GST. Non-taxable to shareholder/employee on receipt (provided it’s a valid expense from that perspective).
Deductible properly and GST-claimable to the corporation.
It cannot be capitalized if it is owned personally. There may also a maximum on the allowed capitalization amount, even if it is owned by the company, depending on the vehicle class. This raises red flags!
@SmallBizGuy - we don’t have enough information to answer the way you did. She called it a vehicle - is it a car or a pickup or other delivery vehicle? If the client is not personally registered for GST/HST, how can the client charge the tax?
It doesn’t matter. The capitalization of a non-owned asset is so far offside it obviates much of the rest. Even if it were a delivery vehicle or a dump truck…whatever…it remains offside.
The same issues remain true of a leaseback to the corporation. A lease still needs to be at FMV or there can be other implications. Proving that FMV would be challenging in most situations.
The only thing that goes away is the issue of lease or cap cost vs the max allowable.
If an auto is in the company name but is under control of the shareholder, the shareholder is considered to receive a taxable benefit of 20% of the cost of the vehicle annually as long as the company owns the car. I had a client who was badly hurt by this. In his case, his car was 10 years old and the 20% was still on the original price.
It is a truck, and the client is in the trade industry.
It doesn’t matter. It still isn’t owned by the company.
If it WERE owned by the company and does NOT qualify as a “passenger vehicle” then different rules would apply. But if it’s (say) an F350…it’s likely a “passenger vehicle” not a “motor vehicle”.
Nonetheless…it’s moot…because the vehicle is NOT owned by the corporation.
Personally I don’t care…but CRA, if it audits, will have a field day.
Taxable benefits for the use of a vehicle owned by the corporation are based on actual mileage. Not a random 20%.
Here is CRA’s own calculator.
You are correct that is based on the original cost of the vehicle.
@SmallBizGuy is 100% correct. The only way to claim a personal vehicle in a corporation is by charging mileage based on the the allowance rates posted by CRA.
The corporation cannot claim any expenses on a vehicle that it doesn’t own.
When did he acquire the truck? What did he do about the GST/HST? Who paid for the vehicle - the corporation? I would suggest he should have the ownership changed to the corporation. Someone will tell us about all the potential difficulties with this, but it seems to me it should not be a big issue if he bought it recently. An F350 owned by a tradesman and loaded with tools/parts would not be a passenger vehicle even if it were a 4 door.
The fact is that the vehicle was purchased by a person, not the corporation. You can’t just “change the ownership”.
The invoice was issued in the name of the person - the legal owner - and there is no provision to transfer that, and the GST paid to the corporation. (Note that an ITC is only claimable by the named party on the invoice under the Excise Tax Act.)
I understand the frustration…but this is why people should talk to a tax pro BEFORE DOING THINGS, not after.
This is not a hindsight-repairable situation. Not really sure what the issue is here. It’s pretty clear.
With regard to the F350, Sec 248(1) wants to have a conversation with you. It will be “a question of fact” as the Courts like to say.
Thank you for your comments. Very informative!