A common question we get from professionals is whether to buy a car from within their corporation, or to do so personally. There are several things to consider when deciding whether this is an option. In some cases, adding a vehicle to a corporation can lead to unforeseen personal tax. Here are a few things to keep in mind before purchasing a new car.
Business Usage
The first thing to consider is how often you will be using the car for actual work. Unfortunately, this does not include the commute from home to the clinic, unless the car is needed for other business-related travel from the clinic during that day. For most professionals, the majority, if not all your work, does not require you to have a car. For a vehicle to be considered a usable business asset, it needs to be used by that business to create revenue. If your clinical work doesn’t require you to drive to various locations, most of the expenses and upkeep of that car will be considered personal income by CRA. In that case, it’s likely best to buy the car personally instead.
Standby Charge
Once the car is purchased, and is included in your corporation, you need to review the amount of time the car is used for personal travel as well. If you fall into the previous scenario where the majority of your usage is personal (commute to and from work or running errands), then you have a taxable benefit that the company has now offered you. This is calculated through what is called the “standby charge”. This is a calculation of the estimated costs of maintaining the vehicle that is prorated based on the portion of time the car is used personally vs for business. You can imagine that if you dive the car predominantly for personal activities, this taxable benefit can be quite extensive. And keep in mind this taxable benefit is taxed personally on top of any funds you withdraw from the corporation through either salary or dividends. The standby charge is in effect unless you drive the car more than 90% for business; again, this may not include your commute to and from work. As such, the threshold for when it can make sense to put a vehicle in the corporation is much higher than most professionals can achieve.
Mileage Claims
There are some cases where practitioners need to travel between clinics or locations for part of their duties. In those cases, the mileage between these locations would count as business travel. This business use can be claimed in the corporation through a mileage claim. In this case, you would calculate the mileage driven in a year for business on your vehicle and the company would then reimburse you at the current reimbursement rates provided by CRA. For 2025, this is $0.72 on the first 5,000 km and $0.66 on the remaining kms driven. In this scenario, the vehicle would be purchased and owned personally, however, you as the shareholder would get partial reimbursement for the business usage of that vehicle.
Record keeping for mileage claims is required by CRA and it is required that a mileage log be maintained to prove the usage of the vehicle. Usually, a baseline year is a good starting point where you track all the personal and business mileage for that period. Then in years following, CRA will usually accept a high-level calculation of the mileage based on the trips to/from various business locations. There are a few apps out there to track the mileage as well, however, an excel spreadsheet has been a tool some clients have also used. It’s usually best to find a system that works for you as it should be in place for at least one year to establish that baseline.
Financing Through the Corporation
Another question that often arises is, if the car is purchased personally, can the corporation help finance the purchase? While money can be withdrawn from the corporation to pay for the vehicle, that money either needs to be paid back to the corporation before the end of the fiscal year end, or it must be taken into account as income. Given the price of a vehicle these days, that can be a lot to add to personal income if it needs to be added all in one year. Depending on how disciplined you are with drawing money from your corporation, you could split this up over two personal tax years. Unforeseen future cash needs could come up though and ruin the plans of deferring income personally over two years. In most cases, the interest rate you would pay on a car loan is not that high when compared to the personal tax rate you could pay for drawing funds from the corporation to buy the car. In that case, it usually makes sense to finance this outside of the corporation.
Final Thoughts
As alluded to at the beginning, for many professionals, using a vehicle as part of your everyday business is not very common and as such is not something that is typically recommended to be part of your corporation. There are a few small exceptions to this though: if, for instance, you travel around a lot between clinics, or if the vehicle is used only for business and you have another vehicle for personal use. If you are part of the majority and would not be using your vehicle more than 90% of the time for business, then it’s likely best to buy the car personally and get a reimbursement for any mileage you do drive for work. In the end, it’s cleaner for the year end preparation and will save you from unforeseen personal tax in the future.
