In Canada, many business owners consider purchasing vehicles under the company’s name to benefit from potential tax deductions. While this strategy may offer certain advantages, it is subject to specific tax rules and limitations set by the Canada Revenue Agency (CRA).

1. Ownership Structure and Tax Treatment

Whether a vehicle is registered under a business or a personal name does not automatically determine its tax advantage. The CRA applies the principle of fairness, ensuring that tax benefits are proportionate to actual business usage. Therefore, both personal and business ownership can offer tax relief if the correct procedures are followed.

• Business-Owned Vehicle: Expenses are recorded within the business, but personal usage must be tracked and included as a taxable benefit to the employee or shareholder.

• Personally-Owned Vehicle: The business can reimburse the owner for business-related mileage at a standard rate, without triggering a taxable benefit.

2. Vehicle Type and Scope

This guidance primarily applies to passenger vehicles, which is used for transporting individuals. Different rules apply to heavy-duty or commercial vehicles, which are generally considered 100% business-use and have fewer restrictions.

3. Mileage Tracking Requirement

To substantiate business-use claims, individuals and corporations must maintain a mileage log. This log should include:

• Start and end addresses for each trip

• Date and business purpose

• Distance traveled

Total annual mileage (e.g., 25,000 km) must be broken down between business and personal use (e.g., 18,000 km for business, representing 72% business use). This ratio determines the deductible portion of vehicle-related expenses.

4. Deductible Expenses

Once the business-use percentage is established, the following expenses may be deducted proportionally:

• Lease or finance payments

• Fuel and oil

• Insurance

• Maintenance and repairs

• Licensing and registration

• Tolls (e.g., Highway 407)

• Winter tires and other consumables

Any personal use percentage must be treated as a taxable employee benefit and reported on the T4 or T4A slip.

5. Capital Cost Allowance (CCA) and Electric Vehicles

For owned or financed vehicles, the CRA allows businesses to claim depreciation through Capital Cost Allowance (CCA). The limits are:

• Gas vehicles: Maximum CCA cost base is $38,000

• Electric vehicles (EVs): Higher threshold of $61,000 to encourage adoption

Expenditures above these limits are not eligible for CCA deductions.

6. Lease Limitations

For leased vehicles, there is a monthly deduction cap. As of 2024:

• Maximum deductible lease cost: $1,050 plus HST per month

• For 2025: $1,100 plus HST

Only the portion of lease expenses related to business use is deductible.

7. Reimbursement for Personally-Owned Vehicles

Where the vehicle is personally owned, the company may reimburse the individual using CRA’s standard mileage rates. These rates for 2025 are:

• $0.72/km for the first 5,000 km

• $0.66/km for each additional km

Reimbursements within these rates are considered non-taxable and require mileage documentation.

8. Simplified Recordkeeping Option

To reduce administrative burden, CRA permits a simplified approach. If a full logbook is maintained for one year, a representative three-month sample may be used in subsequent years, provided driving patterns remain consistent.

9. Vehicle Type Exception: Commercial and Engineering Vehicles

Larger vehicles such as trucks, cargo vans, or engineering vehicles used solely for business purposes may be 100% deductible. These typically include service vans used by construction, telecommunications, or renovation companies, which are not commonly used for personal activities.

10. Financing vs. Leasing: Key Differences

• Financing/Purchase: The vehicle is a capital asset. CCA applies based on the business-use percentage and vehicle cost limitations.

• Leasing: Treated as an operating expense. Subject to monthly deduction caps and must also be adjusted for personal use, if any.

Conclusion

Whether a vehicle should be purchased under a business or personal name depends on various factors including usage patterns, vehicle type, business structure, and recordkeeping capabilities. It is critical to maintain accurate mileage logs and understand CRA’s limits on deductions to avoid audit issues or unexpected tax liabilities. Consulting a licensed accountant prior to making a decision is highly recommended, as each case requires individual assessment based on specific circumstances.