Whether you are a sole proprietor or an incorporated business owner, if it is time for a new or additional vehicle, deciding whether to own a vehicle personally or have it owned by the corporation is a common question. The decision can significantly impact your taxes, business expenses, and personal finances. To make an informed choice, it is important to understand the differences between the two options and how they align with your specific circumstances.
This guide will provide an overview of the key considerations to help you prepare for a productive discussion with your accountant.
An individually-owned vehicle is registered in your personal name, which is the reality for sole proprietors. To calculate deductions or reimbursements:
Example: If you drive 10,000 kilometers annually for business, your reimbursement would be calculated as follows:
If actual expenses are lower than the total reimbursement amount, the owner/shareholder would effectively withdraw tax-free funds out of the corporation, especially if they incur significant mileage and vehicle expenses remain relatively low.
However, if the owner/shareholder drives less for business purposes and/or incurs higher car expenses, the kilometre method may not be considered a “reasonable reimbursement”. In such instances where the “business” use of the vehicle pro-rated expenses exceeds the reimbursed amount, the individual owner or employee can write off the balance (above the reimbursed amount) on their personal taxes by completing a T777 (Statement of Employment Expenses) form accompanied by T2200 Conditions of Employment Form.
“You must register a corporation-owned vehicle in your company’s name. The company pays for all vehicle-related expenses, such as fuel, insurance, maintenance, and financing costs. However, any personal use of the car creates a taxable benefit, which you must include in your personal income (reported on the T4 slip). The calculation of the taxable benefit factors in the original cost of the car, the percentage of personal use, and the operating costs covered by the corporation.
The taxable benefit is based on a complex formula, but can be approximately 25% of the car value every year, which can equate to a large taxable benefit for the owner. However, acquiring the vehicle through the corporation allows the business to acquire a higher-end vehicle for the same money and spread the taxes over multiple years, since it avoids the need for owners to withdraw money from the corporation and pay tax on those funds in a single year.
Example: If a corporation owns a Tesla valued at $60,000 and you use it primarily for personal use, the CRA will consider approximately 25% of the $60,000 purchase price a taxable benefit and add it to your personal income on your T4.
Once you have determined the type of vehicle needed, your budget, and the ownership structure, the next decision revolves around whether to buy or lease the vehicle.
With buying, the maximum that can be written off in 2025 is $38,000 plus HST (or up to $61,000 for zero-emission vehicles). For leasing however, the maximum deduction is $1,100 + HST/month.
Given that many vehicles exceed the $38,000 threshold, it is crucial to understand that the difference between the full purchase price and the $38,000 write-off represents non-tax-deductible funds.
Consequently, for some entrepreneurs, leasing initially and subsequently buying out the vehicle once it depreciates to $38,000 may prove financially prudent. This approach allows for monthly lease payments to be written off until reaching an amount closer to the purchase threshold ($38,000).
For businesses with more stringent cash-flow requirements, assessing financing rates for vehicle purchase versus lease rates becomes imperative.
It is essential to note that you can deduct interest on borrowed funds. The deductible interest expense is the lower of the total interest paid for the year or $10 per day of interest paid. Corporations can deduct the entire deductible interest amount. Individuals, however, must pro-rate the deduction based on the vehicle’s business versus personal use. Consequently, you can only deduct the portion used for business purposes from taxable income.
Estimate the percentage of business versus personal use of the vehicle. A higher percentage of business use may favor corporate ownership, while predominantly personal use may make individual ownership more efficient.
Consider the effort involved in tracking mileage for reimbursement versus maintaining detailed records for a corporation-owned vehicle’s personal use.
Compare the actual costs of owning and operating the vehicle against the CRA mileage reimbursement rates. For high-mileage drivers, reimbursement may be more advantageous.
Determine whether your corporation or personal finances are better suited to cover the costs of purchasing or leasing a vehicle.
Ensure compliance with CRA requirements for documentation and reporting, whether you are claiming mileage or calculating taxable benefits.
Every situation is unique. Choosing between an individually or corporation-owned vehicle depends on business use, cash flow, and tax implications. Your accountant can assess your circumstances, evaluate the financial and tax impacts, and recommend the most efficient option.
Key questions to discuss with your accountant:
Choosing between an individually or corporation-owned vehicle depends on tax efficiency, ownership costs, and CRA compliance. Understanding your options and consulting your accountant can help you make an informed decision aligned with your business and personal goals.
(Tax rates and information included within this article are current as of February 27, 2025)
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This blog is not meant to provide specific advice or opinions regarding the topic(s) discussed above. Should you have a question about your specific situation, please discuss it with your GBA advisor.
GBA LLP is a full-service accounting firm in the Greater Toronto Area, but we primarily service all of Ontario as well as the rest of Canada virtually, except Quebec. Our team of over 30 provides audits and reviews of financial statements, compilations of financial information, and corporate tax returns. We provide specialized corporate tax and succession planning for small and medium businesses, in addition to general advisory services.
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