Whether you are self-employed, use your vehicle for work, given a monthly car allowance, reimbursed for vehicle expenses or given a company vehicle, the tax implications can be difficult to unravel. For each situation there can be tax advantages and disadvantages. Be sure you are recording the correct expense deduction for your situation. The Canada Revenue Agency also wants to make sure employees are not receiving a personal benefit free of tax.
Following are the current rulings from The Canada Revenue Agency:
If a personally owned vehicle is used by an employee for work related business the employer can pay a tax exempt allowance of $0.58 per kilometre for the first 5,000 kilometres and $0.52 per kilometre for every additional kilometre
The tax exempt allowances are supposed to reflect the key cost components of owning and operating the vehicle, including amortization, insurance, repairs and maintenance, possible financing and fuel costs.
If the business provides employees with a company owned vehicle, an operating benefit of $0.28 per personal kilometre should be calculated and either paid back to the business or treated as a taxable benefit and included on the T4. This means that the employee would pay tax on the value of the operating costs. A standby charge would also need to be calculated for the vehicle. This is calculated by taking a percentage of the personal mileage divided by the total mileage driven in the year times the cost of the vehicle.
The Canada Revenue Agency announces planned rate changes each year to ensure businesses are aware of the new rates before they apply. In all situations it is important to understand the tax consequences when using a vehicle for business.