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Vehicle Expenses

August 20, 2012

Tax Question:

Can I be reimbursed for vehicle expenses?

Facts:

If you own a vehicle personally and are required to use it for corporation purposes then you can claim a reimbursement for that usage. There are two types of allowances that you can use.

Discussion:

The first is that the corporation pays a flat rate allowance say $500 per month to you. As this is a flat rate you have to report it as income on your personal tax return. The corporation will get a deduction for the allowance. Against this income, you will be allowed to deduct all your vehicle expenses in proportion to the business km travelled. You will need to complete a T2200 each year.

The best way to set this up is to pay an allowance that equals the proportion of business km costs you incur so that the net impact on personal taxes is zero. The second is that the corporation reimburses you on a reasonable per km basis. For 2012, reasonable is 53cents on the first 5,000km and 47cents thereafter. Again the corporation would report the expense but you would not have to include the allowance as income, but you would not get to deduct the vehicle expenses. The advantage to this is that if you are doing significant business km’s then you are taking money out of the company without paying taxes or CPP. If this allowance is in excess of the vehicle costs then you are ahead of the game. But you must calculate the allowance on a per-kilometre basis.

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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