Delivery Charge: A Company Car Can Mean More Tax
It may be very attractive for your company to buy you a car, but you need to be mindful of the taxable benefit considerations associated with using that vehicle.
Under the tax rules, if you, as a shareholder, or someone related to you, are provided with the use of a company car, you must generally include a "standby-charge benefit" and an "operating-cost benefit" in your income. The standby-charge benefit represents the benefit when the car is available for personal use, while the operating-cost benefit represents the expenses paid by the company to operate the vehicle. Both are considered to be taxable benefits to you as the shareholder.
Take the recent Federal Court of Appeal decision involving a private company, A. Ltd., which was owned 100% by Mr. B. The company was the beneficial owner of a car, paid all the expenses and depreciated it for tax purposes. During the CRA's audit of the company, Mr. B. met with the CRA to agree on the personal use of the car versus its business use and it was determined that the business use was 75% and the personal use 25%.
Based on these calculations, the CRA determined the value of the benefit to be included in Mr. B's income was a standby charge of $5,100 and an operating benefit of $1,700 for a total of $6,800. Mr. B. argued that, in fact, it was his father, the general manager of A Ltd., who used the car to pick up materials and supplies for the company, collect cheques from A's customers and do the corporate banking, among other things. Neither kept a log with respect to the use of the car.
According to the court, Mr. B's father "was under the mistaken belief that if it were revealed that he used the automobile, no benefit would be assessed to his son."
The judge concluded that a benefit was indeed conferred on Mr. B. since it was a company car paid for by A Ltd. Since Mr. B. was the sole shareholder of A Ltd. and he allowed his father to have exclusive use of the car for both personal and business purposes, the value of the benefit was properly taxable to Mr. B. as the company's shareholder.