Don't get detoured on the road to tax savings

On the issue of incorporation many operators ask very similar questions. One question that keeps coming up is having your corporation own a vehicle so the entire costs can be written off. It is a question that comes about because when the average individual thinks about corporations they picture big money operations such the trucking companies they work for. They see trucking companies have “corporate vehicles” and they often are allowed to drive around “free”. They then assum they can do the same thing if their corporation purchases one. The truth is, they can but at a cost.

CRA does not want “company vehicles” driving around as total write offs. Automobile dealerships (for example) regularly used to provide dealer plates to their salesman. One of the reasons why they do a lot less of it is because of “taxable benefits”. Taxable benefits are the exact opposite of non-taxable benefits (on that point my logic is impenetrable). Estimated re-imbursement for job related costs are classified as “non-taxable” the exact opposite of receiving the benefit of a “company vehicle” for personal use.

If a company owns a vehicle and the employee uses it as a personal vehicle, CRA calculates the percentage of personal use and assigns a taxable benefit to the use (a generous rate by the way). However, even if the vehicle is NEVER used but is parked on the driveway of the employee, the opportunity for personal use still exists, and is therefore taxed. The specific name of this opportunity is called “standby charges”. To place a long complicated formula into a simply number it would be 30% of the purchase value. This means that a $20,000 vehicle that is NEVER used but parked just once on the employees driveway is deemed to be $6000 of taxable benefit… indefinitely! If the vehicle is kept and owned by the corporation for 10 years the charge will be $6000 EVERY YEAR! It does not reduce in value as does depreciation.

This application of tax is BRUTAL on company owned vehicles. It is so horrendous that operators who are incorporated should NEVER have their corporations own a small vehicle. Using their personal vehicle for business use, and having the corporations pay them “non-taxable benefits” by using the treasury board re-embursement figures is the BEST after tax system available to ANY Canadian citizen. Check out your province rates at: http://www.tbs-sct.gc.ca/pubs_pol/hrpubs/tbm_113/b-eng.asp.

Saving bucks is often times a matter of using the right system!