GST on Vehicles

July 10, 2018 Andrew AdolphVehicles,GST

How To Qualify GST On Vehicles For Business Purposes

For many companies, vehicles are vital to conducting day-to-day business. However, they can also be one of the most significant expenses. To make it easier for companies that rely on cars to afford this investment, the Canadian Revenue Agency (CRA) offers GST on vehicles. 

For businesses that qualify, this tax benefit can help offset the initial purchase price in addition to fuel, repairs, and routine maintenance. Eligibility varies based on two primary factors:

• The type of vehicle
• The extent that the vehicle is used for business purposes

There can be serious — and personal — tax consequences for anyone who drives the said vehicle. However, these problems can be easily avoided by properly maintaining logbooks and carefully tracking each use. Unfortunately, that is something many businesses do not do.

Here’s what businesses need to know about GST on vehicles (plus suggestions for record-keeping).

GST On Vehicles Depends On The Type Of Automobile

If you try to claim GST on vehicles for work, the CRA will carefully assess it to determine the taxable benefit. 

CRA auditors place vehicles into two categories: motor vehicles and passenger vehicles. 

Unfortunately, if your vehicle is classified as a passenger vehicle, it could limit the amount of GST on your write-off. Generally, passenger vehicles include:

• Most cars
• Station wagons
• Vans
• Some pick-up trucks

However, there are exceptions, such as automobiles purchased for ride-sharing. This typically includes vehicles that are used as a taxi more than 50% of the time. Additionally, vans used more than 50% of the time to transport goods can also qualify for GST write-offs.

Maximum Write-off & Standby Charge Benefit

The maximum amount businesses can write off on passenger vehicles is $30,000 – a number that has not changed since 2000. 

The formula to determine the amount of the taxable benefit to include in the shareholder or employee’s income depends on the vehicle’s original cost. 

For example, suppose you own an 18-year-old vehicle. In this case, you would base the taxable benefit on the vehicles’ worth when you purchased it.

The benefit to be included in income is called a “standby” charge.” This is equal to 24% of the original cost of the vehicle, per year, prorated to whatever the percentage of personal use is. 

TIP: The CRA considers driving to and from the same work location every day as personal use.

So to illustrate the effect, say you own a Mercedes that you purchased in 2015 at $100,000. You drive it to the same office every day, along with regular out-trips for business meetings. 

You also maintain a logbook, but because the CRA considers trips to the same office as personal use, your vehicle usage for business versus personal was 50%. 

The CRA would assess you a standby charge benefit equal to $100,000 x 24% x 50% = $12,000 at your highest marginal tax rate with the standby charge rules. 

Meanwhile, the maximum CCA the company could claim in 2018, for example, is $4,095, at its relatively lower corporate tax rate.

In addition, the shareholder/employee will also receive a taxable benefit to cover operating costs, even though the corporation paid for the vehicle. This benefit will also be prorated for personal use based on the vehicle usage records you are required to keep.

Logbooks Are Required To Prove Vehicle Use

As tedious as logbooks are, you must maintain a record to qualify for GST on vehicles used for business purposes. 

In addition, to recording the odometer reading at the beginning of the year, the CRA requires a record of the following information for every work trip:

• Date
• Destination
• Purpose
• Kilometres driven

Of course, keeping track of these details can be difficult, especially for larger companies with many vehicles. 

Fortunately, many great apps track all of the above and more using the GPS in your phone. 

If you have been less than diligent about your books and have a Google account, you may be able to find your location history with Google Timeline.

If your business travels take you to different locations, your business use percentage should be enough to escape the standby charge and operating cost benefits. However, that means you need to stay on top of vehicle usage records.

Bottom Line

GST on vehicles is extremely valuable for businesses of any size. So, of course, it makes sense that you would want to take advantage of this benefit.

However, the type of vehicle and how much you use it for business and personal tips can limit the amount of GST you get — or disqualify you altogether. 

The CRA requires businesses to log specific information to prove vehicle use. This task can be quite tedious and time-consuming, but it’s necessary. Luckily, tracking and record-keeping have never been easier, thanks to apps and other digital tools.

A tax professional can help you get the most GST on vehicles. As a CPA and former CRA auditor, I can also ensure your company is fully compliant during a GST audit. Call 604-240-6173 or email andrew@gatewaytax.ca to book your free appointment.

Andrew Adolph

Andrew Adolph is a CPA and former CRA auditor with 25 Years of experience. He helps businesses to not par any more in sales taxs than the law says they must and acts as an advocate for you if you are being audited, so you can fous on your business.