Are you planning to buy a new vehicle in the near future? Should it be purchased using your personal name or is it better to have it registered with the Inc?
Although the costs (SAAQ, insurance…) are identical or almost identical, the difference in taxes can amount to thousands in certain situations. And the decision-making process to get to the right decision can be complex without the right expertise.
Let’s first look at the main differences between the two.
If the vehicle is owned by the staff
Using your personal vehicle to run your operations brings you certain tax benefits:
- The shareholder (you) is eligible to a reasonable mileage allowance of $0.58/km maximum, non-taxable for the shareholder and deductible for the corporation.
- The shareholder (you) is allowed to receive, from the corporation, a periodic or fixed allowance. This will be added to his income, therefore taxable. However, the shareholder is entitled to deduct his expenses incurred for the vehicle in his personal tax return.
- The company does not reimburse anything to the shareholder. On the other hand, the shareholder is entitled to deduct his vehicle expenses in his personal tax return.
- The company assumes or refunds the expenses incurred by the shareholder and in this case, the shareholder is not entitled to deduct any expenses, but the company is entitled to deduct these expenses.
If the vehicle is owned by the company
As opposed to the previous point, the processing is totally different for so-called company vehicles. The emphasis of the calculations here will be on the taxable benefits of distances driven for personal use:
Personal use is taxable to the shareholder (taxable benefit):
- If 50% or less of the planned kilometers are for business:
- $0.28/planned personal km + (24% of the cost of the vehicle after taxes X (number of months of use in the year / 12))
- If 51% or more of the planned km are for business, it is possible to choose the most advantageous of the 2 following methods:
- Classic: $0.28/ personal planned km + ((24% of purchase cost after taxes X number of months of use) X (number of km planned for personal use / (1667 km X number of months of use in the year)))
- Alternative: 1.5 X (24% of the purchase price after taxes X number of months of use in the year) X (number of km planned for personal use / (1667 km X number of months of use in the year))
Direct business expenses incurred by the company or the shareholder are deductible in both cases.
How to make the right decision?
Information collection and estimates – Be as accurate as possible:
- Estimate the mileage that will be driven each year:
- Estimated annual number of km for business
- number of km estimated annual personal use
- Estimate the costs related to the operation of the vehicle
- Purchase price before taxes
- Purchase price after taxes
- Estimated annual expenses (gas, insurance, license plate, repairs…)
- Estimate your income and taxes:
- Your income from the company only
- Your income from sources other than the corporation
- Marginal personal tax rate
- Tax rate of the inc.
Calculations – 7 calculation steps are required to determine the taxable amounts and the deductible amounts.4 for a personal holding and 3 for a holding within the company:
- The amount of the shareholder’s taxable benefit
- The amount of deductible expenses for the shareholder
- The amount of deductible expenses for the company
Scenarios – Compare the 7 scenarios with the effective marginal rate. This decision may also have an impact on non-tax data (e.g., child allowances):
- The fiscal cost of taxable benefits to the shareholder
- The tax benefit of expenses borne by the shareholder
- The tax cost to the corporation of the employer’s share
- The tax benefit of the expenses borne by the company
Some cases are obvious and do not require calculations. For example:
- Little business mileage: Buying in your own name is probably the right choice.
- Very low shareholder income: Purchasing in the name the company is probably the right choice.
- The vehicle is costly: Buying in your own name is probably the right choice.
Want some help in making the right decision? Don’t wait to book a consultation with one of our accountants.Tax declaration Services for Companies