What drives this decision?
If you’re an entrepreneur, you know there are several tax incentives that come with business ownership. At tax time, you’ll be asked to provide all the necessary documentation to support writing off office purchases and company outings. When I speak with business owners, I am often asked if you purchase a vehicle personally or through a business. Though this decision is not always easy to navigate, there are a few simple rules to follow when purchasing a vehicle as a business owner. Here are the basics on how to break down the decision making process and thankfully, it’s a lot easier than most people think!
Do you own a business that justifies the use of a company vehicle? If the Canada Revenue Agency (CRA) decided to audit your tax return, you may be asked to clarify how your business uses a vehicle and to produce necessary documentation to support this. Remember, the CRA looks for businesses that claim too much (or too little) to make sure that owners are not making improper tax payments. Despite the fact that you may be using a vehicle to commute to your workplace, the CRA does not consider this a business expense. If this is the main reason you’re thinking about purchasing a vehicle, consider a personal purchase instead.
Does an eyelash technician need a company vehicle to run the business successfully? How about an investment banker? We can both agree that in both of these cases, the answer is no. What about a contractor that drives from site to site on a regular basis and moves materials daily? Clearly, the answer is yes! When driving, if business kilometers outweigh personal kilometers, it’s better for the business to own the vehicle. Remember, if your business owns the vehicle, any time you use it personally, it’s a taxable benefit.
How do you prove business use? We suggest using the MileIQ App available for Android and iPhone. This app runs location-tracking software in the background and automatically detects when you’re driving your vehicle. Instead of manually recording the number of kilometers driven, you simply swipe right for business drives and left for personal. It even sends you a monthly summary to eliminate the guesswork! Now, you can easily organize your kilometers and have all the information at hand should the CRA request it at tax time.
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