Putting your car in the company means registering the vehicle under your corporation and treating it as a company vehicle used for business purposes.
This allows the corporation to claim expenses such as fuel, car insurance, maintenance, registration fees, depreciation, and other running costs related to the vehicle. However, it also triggers specific Canada Revenue Agency rules that can create taxable benefits, limit deductions, or increase your administrative burden.
Whether it is worthwhile depends on your business use percentage, the type of corporation you have, and the nature of the vehicle, including your insurance coverage requirements. Additionally, it's also important to consider if it makes sense depending on your business mileage, the percentage of personal use, the type of vehicle, and whether the vehicle must be insured as a commercial vehicle, which can affect insurance premiums.
Below is a detailed breakdown of the tax, legal, insurance, and operational considerations.
When a corporation owns a car, the vehicle becomes corporate property. The corporation pays for expenses and claims tax deductions related to operating and maintaining the car.
In exchange, the shareholder or employee using the vehicle must follow CRA rules that determine whether the use is business or personal, and must also ensure the vehicle has proper auto insurance under the correct policy classification.
Key pieces to understand include:
Certain insurance companies may require switching from personal auto insurance to commercial auto insurance once the vehicle is owned and operated by the corporation. This system can be beneficial for high business use, but costly for low business use.
Personal driving creates a taxable benefit (a non-cash benefit you receive from your employer/corporation) added to your employment income, calculated as a standby charge based on vehicle cost and availability plus an operating cost benefit based on personal kilometres driven. CRA uses two calculations:
Standby Charge: Calculated based on the cost of the vehicle or its lease payments.
Operating Cost Benefit: Based on personal kilometres driven.
When business use is low, these taxable benefits can exceed the corporate tax savings. For example, if a corporation owns a $45,000 vehicle that is used only 40% for business, the corporation may deduct roughly $3,200 of annual expenses, creating about $400 in corporate tax savings at the small business rate.
At the same time, the personal use of that vehicle can trigger taxable benefits of approximately $13,000, which can result in more than $6,000 of personal tax for the shareholder. In this situation, the personal tax cost far outweighs the corporate tax benefit, making corporate ownership of the vehicle inefficient when business use is low.
Rule of thumb: when business use is below 70%, the personal taxable benefit on a corporate vehicle often outweighs the corporate tax savings. In those cases, personal ownership with mileage reimbursement is usually more tax-efficient.
Luxury or high cost vehicles face strict limits on:
This can reduce the overall tax savings .
The corporation must maintain:
This increases administrative workload.
Some insurance companies require commercial auto insurance for corporate vehicles. Premiums may increase, coverage rules may differ, and failing to update your auto insurance or insurance coverage can lead to denied claims.
Input Tax Credits for passenger vehicles have specific limits based on price and business use percentage.
Corporate ownership works best when:
In these situations, deductions often outweigh taxable benefits.
Keeping the car personal is usually more efficient when:
In these cases, it is often more tax efficient to keep the vehicle personal and charge the corporation mileage for business use.
Instead of transferring ownership, many business owners keep the car personal and charge mileage using CRA’s prescribed per kilometre rates.
Benefits include:
This is the most common strategy among small business owners.
Putting your car in the company can offer tax savings, better separation of business expenses, and potential GST or HST recovery. However, increased car insurance requirements, possible switches to commercial auto insurance, taxable benefits for personal use, and detailed record keeping mean it only makes sense when business use is high. For many owners, keeping the vehicle personal and charging mileage remains simpler, cheaper, and more tax efficient.