Vehicle Use for Corporation

by Sharon
(Calgary)

I have a client that has recently incorporated. He took out a loan to purchase a used vehicle to use strictly for business purposes. The loan is registered in the corporation's name and the loan payments are coming out of the corporation's bank account.

However, the registration and insurance is in the Owner's name. The insurance is commercial but the monthly premiums are being paid out of the Owner's personal bank account.

Should the registration and insurance not be in the Corporation's name for a proper audit trail or does it matter?

Secondly, should I go back and do expense reports and post those transactions to shareholder?

Lastly where would I look to find how to track vehicle expenses for a vehicle being used 100% for business on CRA's website.






Hi Sharon,

You can search CRA's site for the words "Automobile and motor vehicle allowances" to find the treatment for corporate vehicles.

On my CRA News page, I have links to vehicle topics ... both personal and corporate.

It's important when setting up your business transactions to keep all your ducks in a row. Business owners often have a hard time understanding that a corporation has a separate legal identity.

As I've explained before, if an asset is registered in the owner's name, it is a personal asset regardless if the funds to purchase were removed from the corporation.

You need to treat this as a personal vehicle used in the business. This means, unless he has another vehicle he uses for his personal life ... and parks the car at the work place during non-business hours, it will be difficult to claim it is 100% business use. Remember, driving to and from the office is NOT considered business use.

This also means the loan payments will have to be treated as shareholder loans. The Owner-Manager will have to monitor this account closely to ensure it stays in a credit position. Once the shareholder account switches to a debit position, new rules come into play.







P.S. I would like to remind you there is a difference between information and advice. The general information provided in this post or on my site should not be construed as advice. You should not act or rely on this information without engaging professional advice specific to your situation prior to using this site content for any reason whatsoever.

Company Vehicle and the Individual

I have a client that is the sole shareholder. His company owns his vehicle. He has a large credit balance in his shareholder loan account.

He would like to transfer his vehicle from the company to himself as payback from his shareholder loan. As there is no cash being transfered, what are the tax implications in regards to this transaction.

Sorry I don't provide tax advice. I would also advise your client to see an accountant on this one as owner-managers need to be very careful when withdrawing money or assets from the corporation in the event it triggers a taxable event ... even though you say the account is in a credit balance.

An accountant can't always fix the effects of these types after they been done ... but they certainly can before the transaction occurs.

CRA does audit for vehicle transactions (which are often easy pickings) and shareholder loan transactions.

Personal Vehicle Use in an Incorporated Business

by Shavonne
(NL, Canada)

My husband owns an incorporated business along with a partner.

My husband uses our personal vehicle to do all of his business, as well as his personal travels on the weekends.

I have been thinking that since I own half of the vehicle, and it is racking up km's to the point where it may not make the 5 year loan point, I should be compensated for my share of the payment, at least 5/7 days of the week that it's used for business.

Do you think that I should be paid 1/2 of 5/7 of the payment (where we both pay for the vehicle), or do you think there is a better way?

Essentially the business is using our vehicle free of charge right now and I'm paying for a vehicle that is going to be useless before it's paid off.

Thanks for any suggestions you may be able to give us!

Hello Shavonne,

You definitely want to reduce your tax liabilities by claiming your automobile costs relating to the business. This is an area with complex, inflexible rules, so know your rules to avoid trouble with the tax auditor.

Take a minute to learn your options for reimbursement of your personal vehicle when you are incorporated in my article on Business Use of Your Personal Vehicle.

You have two options; an allowance based on business kilometers driven OR an allowance not based on kilometers driven.

If you chose the first option, make sure you adhere to the CRA tax-exempt rates if you don't want to be taxed on the allowance.

It's always a good idea when claiming business use of your personal vehicle to keep an auto log. Your best defense during an audit is supporting documents.

The CRA brought out new auto log rules in late June, 2010. You can find it on the CRA website by keying in the search box: "Documenting the use of a vehicle". It will be up to you to decide if their simplified method will work for you ... or whether you stick with a twelve month log every year.

Sole proprietors have different business use rules, so don't confuse their rules with the rules for an incorporated business.

After looking over the information and following the links, if you have any more questions, please post back here and ask them ... and great thinking on your part Shavonne!

Automobile Benefits for Shareholders

by Jody
(Halifax, NS, Canada)

I have been trying to find an example of a bookkeeping entry for recording the automobile benefit for shareholders, one that shows what to debit and what to credit.

I know the benefit has to be claimed as wages and salaries expense, and the associated income tax withheld is credited to my Employee Income Taxes account, but what do I do with the difference? This difference is a credit, but, has nowhere to go!

If anyone has any experience in this area, any guidance would be very much appreciated.

Thanks in Advance

Hey Jody,

Payroll is not my speciality but here is what I've found.

PwC has an excellent tax guide for car expenses and benefits that they release each year. 2013 has not been released yet but the 2012 guide can be found at pwc.com> research & insights> by service (click on more services)> tax> car expenses and benefits.

Page 7 of the guide explains how to book withholdings related to the standby charge and the operating cost benefit.

The CPA Pay Statement Guidelines may also be of assistance. You don't need to be a member to access the document. It can be found at payroll.ca> resources> payroll guidelines.

Generally most payroll software will book the required entries when you process payroll.

The basic entries for payroll are discussed at Manual Payroll.

Do you have some numbers or an example of your journal entry so I can see what you are booking so far? Generally I would assume that you will have one of three things when booking a benefit: the employee compensation, the employee paid benefits including company auto taxable benefits, or the employer paid benefits.

Hopefully other site visitors with more payroll experience will be able to help.

For those interested in more information on shareholder taxable benefits relating to the company vehicle, you may want to read about shareholder conferred benefits.

 
 

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