How To Ensure Rental Income Within Your Corporation is Active Business Income
How To Ensure Rental Income Within Your Corporation is Active Business Income May 5, 2023 Tax Question: How do you ensure your rental income within
Home » News » Canadian Tax FAQs » Top 5 Common Tax Audit Issues – Part 4
Tax Question:
Top five common Corporate Income Tax issues faced by clients: Auto Expenses Not Recorded Properly
Facts:
Automobile expenses such as gas, insurance and repairs and maintenance are common expenditures that a corporation incurs in the course of business. It is also a common audit item as CRA are aware that many corporations do not record such expenses correctly.
The biggest issue with vehicle expenses is that often the personal usage of a vehicle is not properly accounted for. With vehicles owned by the corporation, it is correct to record all the related expenses in the company accounts, but a taxable benefit needs to determined based on the personal usage of that vehicle. This benefit is then added to the user’s T4.
Conversely, with a personally owned vehicle, we often see all the expenses paid by the corporation and treated as corporate expenses. Technically this is incorrect as you are using corporate cash to pay for a personal asset. A big concern of CRA. The usual correct treatment is to record these transactions as a shareholder loan account draw and replace the expense with an allowance based on a per km usage. Think of it as a reimbursement.
In either situation we have some suggestions to help manage the expenses and ensure you treat them correctly:
If you would like more information on this topic, please contact a member of the Empire CPA team by filling out the contact form below.
Canadian and foreign tax laws are complex and have a tendency to change on a frequent basis. As such, the content published above is believed to be accurate as of the date of this post. Before implementing any tax planning, please seek professional advice from a qualified tax professional. Empire, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above.
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