Canada car tax

[Canadam]

Like I said in my other TOPIC I will be moving to Canada from Europe this year and looking to get an E70 there.

I would like to know a little something about how cars are taxed in Canada? It seems most people own their cars themselves rather than drive company cars. That is quite different from what I am used to. What is the reason for this? How are company cars taxed?

Here in The Netherlands most (working) people drive cars that are owned or leased by their business or employer and if they elect to use it for private use as well the availability of that car + its fuel/maintenance all paid for by their employer is seen as income and as such they need to pay extra taxes for that benefit, being their applicable income tax rate (52% top bracket for people who can afford an X5) on 25% of the MSRP of the car they drive.

Here, for a car like an X5 with a sticker price of €85k that would mean 85.000 x 25% x 52% = €11.050 in extra income tax yearly ($17.500) just for the car.

The only way to avoid this if you have a company car at your disposal is to keep a full log book of every ride you take in the car proving (and they do check gas receipts, maintenance receipts, tickets) you haven't driven more than 500km per year for private use.

All this is kind of ridiculous and just another reason why having a nice car in Europe is so damn expensive.... Yet the height of all the other costs like high purchase prices and expensive fuel make it hardly worthwile to be driving your own car because you will end up spending the same. Bottom line is the government makes money twice for free....

I am hoping this would be better in Canada. I would rather put the X5 in the name of my business than have to buy it personally. Does having a company car in Canada have the same ridiculous income tax implications???

Thanks for your help Canooks, much appreciated!

[JCL]

Not an accountant here, but I have had company cars for years, and I am a Canuck (not a Canook, lol).

Assume for the following that your car is not used extensively for business transactions (ie doing deliveries) but rather is used primarily to drive back and forth to work, plus some client visits.

First, you need to insure the vehicle for business purposes. Varies from province to province, but it costs more than insurance for pleasure use only, or for driving to/from work only.

Next, if the company provides you a vehicle, or an allowance for a vehicle, or pays any expenses for the vehicle then it is income. Not at 25% as in your example, but the actual value of the benefit you receive. In my case that starts with the allowance, the cost of the insurance, the cost of the fuel, etc.

How much of that income is taxable? Say I drive 10,000 km per year, and 1,000 km are for business purposes. Then, 90% of the allowance/insurance/fuel/etc noted above is taxed as income. Business km do not include driving to and from work, even if you make a sales call, those are personal km. All of this must be supported with a log book. You don't have to produce the log book unless requested by CRA.

Plan on a marginal tax rate of 42%, as it varies by province. That is a SWAG, not a calculated average, but it works where I live.

There are some additional details around interest expense. No particular benefit to leasing, it doesn't create a tax advantage so it is more about wanting to get a new car every few years and not having to sell your old car, if you want to lease.

Company cars have largely disappeared, as there is no tax advantage. Car allowances, with vehicles owned by the individual, are more common in my experience.

The good news is that vehicles are cheaper, as is fuel, compared to Europe.

All of the above is from a non-accountant, but is based on my experience. YMMV.

[Canadam]

JCL, thank you for your very very clear answer.

I understand the way to go would probably be purchasing the car as an individual and get a taxable allowance (or extra salary) equal to the car costs plus income tax on same...