TORONTO, Feb. 5 /CNW/ - For many employees and self-employed individuals,
cars are considered a legitimate and necessary business expense. However, the
tax implications can be remarkably complex.
According to PricewaterhouseCoopers' (PwC) Car Expenses and Benefits - A
Tax Guide (2008) employees - and employers - must balance the tax and non-tax
aspects to make sure they make the best choices.
"Company cars, expense allowances and reimbursements can raise
productivity, provide job satisfaction and improve a benefits package - things
that both employees and employers care about," says Mark Walters, PwC
Automotive Tax partner.
"However, the Government wants to make sure that employees do not receive
personal benefits tax-free. Now is the time to plan for 2008. Employers can
reduce their costs and employees can maximize their car deductions or reduce
their taxable car benefits by taking certain steps."
Some steps that employees with company provided cars can follow to
minimize their taxable benefits include:
- Minimizing personal driving - Individuals can minimize their taxable
benefits by making business trips on the way to or from work. They
can also reduce their standby charge, a taxable benefit which applies
when the employee has access to a car for personal use, by driving
less for personal reasons.
- Acquiring an older car from the employer - By purchasing an older
car, an employee will eliminate the standby charge and cease to have
a benefit applied to the original cost of the vehicle.
- Opting out of combined flat-rate and per-kilometre automobile
allowances - Reasonable per-kilometre car allowances are tax-free but
the total of a combined flat-rate and reasonable per-kilometre
allowances are taxable.
According to the guide, employers can reduce their own costs and/or their
employees' taxable benefits by following tax planning techniques including:
- Reducing availability - Employers can reduce the standby charge for
employees by reducing the number of days cars are available.
- Buying or leasing less expensive cars - Less expensive or used cars
reduces the capital cost or the lease cost when calculating the
- Financing car purchases with cash - The interest deduction on money
borrowed to purchase a car is limited. It may be more tax efficient
to finance a car purchase from cash reserves and borrow to fund
working capital or to purchase other assets for which an interest
deduction is not restricted.
PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance,
tax and advisory services to build public trust and enhance value for its
clients and their stakeholders. More than 146,000 people in 150 countries
across our network share their thinking, experience and solutions to develop
fresh perspectives and practical advice. In Canada, PricewaterhouseCoopers LLP
(www.pwc.com/ca) and its related entities have more than 5,200 partners and
staff in offices across the country.
"PricewaterhouseCoopers" refers to PricewaterhouseCoopers LLP, an Ontario
limited liability partnership, or, as the context requires, the
PricewaterhouseCoopers global network or other member firms of the network,
each of which is a separate and independent legal entity.
For further information:
For further information: Lisa An, PricewaterhouseCoopers LLP, (416)
941-8383 ext. 14368, email@example.com, or visit www.pwc.com/ca/carexpenses