Posted on November 03, 2021 in Small Business Tax Planning

Car Ownership; Business Or Personal 20210915 Photo 1.pngCAR OWNERSHIP: BUSINESS OR PERSONAL?

It’s time to get a new vehicle. The decision to buy or lease has already been made. But then the next question comes, when you are a business owner, that is. 

What name should be on the vehicle? The business name or your personal name?

A great question that we get ALOT!!! 

In our experience, working with small business corporations, there are very few scenarios where we recommend putting the vehicle in your business name. Before we get to the examples, let us explain.  

Most (not all) small business owners use their vehicle for both personal and work purposes. It’s not often that a business owner drives their personal vehicle from their home to their office (mileage here generally not deductible) and then jumps into their business vehicle to go about their business day (mileage generally deductible).  

When you use your vehicle for both personal and business use plus it is parked in your driveway when not in use for business, the vehicle is available to you 24/7 which then means there are personal taxable benefits to consider. Taxable benefits are reported on your T4 (if not paid back to the company) and are calculated based on the market value of your vehicle so you can end up paying additional personal taxes just for a vehicle sitting there and being available for you 24/7. And this can be even more significant for some business owners who work from home and don’t have a separate business location.

As a CPA firm, we don’t believe in anyone paying more tax than they should or paying tax on something not being utilized 24/7 for business only, so we generally don’t recommend the business being on title of a purchased or leased vehicle. 

A few scenarios of where we might recommend having the vehicle in your company name:

  1. It’s a non-passenger vehicle and you drive to different work sites daily; i.e. work truck or van with only 2 seats and the rest for cargo, tools, etc. 
  2. It’s a passenger vehicle but you have another vehicle used 100% for personal use meaning you don’t do any (or very limited) of the personal household driving; i.e. no groceries, vacations, kids sports, visits to friends, etc. 
  3. It’s a passenger vehicle but your business driving is greater than 90% usage and you are not driving to and from the same office every day. 

Car Ownership; Business Or Personal 20210915 Photo 2.pngNow keep in mind that just because the vehicle isn’t in your business name, this doesn’t mean the business can’t pay the monthly or bi-weekly payment out of the business bank account. It just means the vehicle itself should be in your personal name. 

At the fiscal year-end, if the company paid more than it should based on your business usage, then you repay the company and/or it gets deducted from your shareholder loan or added to you wages/dividends, depending on how you are paid from your company. It all works out in the end but generally easier and more tax efficient when the vehicle is in your personal name. 

Remember to consult with your insurance provider and ensure that you have the proper coverage based on the business and/or personal usage of the vehicle. And perhaps a consult with your lawyer to ensure you are also covered on that front should an at-fault accident happen in a personally owned vehicle on business outings or vice-versa. 

Furthermore, like everything we advise, if you make a decision that is based on tax only, it’s not likely the right decision. There are always many avenues to consider when making decisions.

***This blog is for information only and not to be used as tax advice or planning without first seeking professional advice. Information is subject to change without notice.