Buying a vehicle through your corporation: what to know

Three ways a vehicle can connect to your corporation

The corporation can own the vehicle and pay its running costs. You can own the vehicle personally and have the corporation pay you an allowance or reimburse your costs. Or the corporation can lease the vehicle. Each option produces a different deduction for the corporation and a different tax result for you, so the question is not only what you can deduct but who bears the tax on personal use.

This article focuses on the purchase decision. For how to split business and personal kilometres, see our article on vehicle expenses and logbook rules, and for the allowance comparison see the article on company car versus car allowance.

The 2026 limits on passenger vehicles

A passenger vehicle is a motor vehicle designed mainly to carry people and seating a driver and no more than eight passengers, which covers most cars, station wagons and vans and some pickup trucks. Vehicles used mainly to haul goods or equipment can fall outside the definition. Passenger vehicles that cost more than a set amount are placed in Class 10.1. The Department of Finance announced that the ceiling for capital cost allowance on Class 10.1 vehicles rises from $38,000 to $39,000, before tax, for vehicles acquired on or after January 1, 2026. Zero-emission passenger vehicles in Class 54 have a ceiling of $61,000, before tax, unchanged for 2026.

Leasing and borrowing are limited too. For new leases entered into on or after January 1, 2026, deductible leasing costs remain $1,100 a month before tax, and for new automobile loans the maximum deductible interest remains $350 a month. Those limits apply to the corporation’s deduction, not to what you actually pay.

Here is an illustrative example. The corporation buys a gas-powered car for $60,000 before tax in 2026. Capital cost allowance is worked out as though the car cost $39,000, at a maximum rate of 30%, so the extra $21,000 produces no allowance. Class 10.1 vehicles are also tracked one vehicle at a time, and special first-year rules can reduce the first-year claim.

Personal use creates a benefit for you

When a corporation provides an automobile and you drive it for personal reasons, the benefit from personal driving is generally taxable. The CRA’s rules refer to employees but state that they also apply to a shareholder or a person related to the shareholder. Personal driving includes ordinary travel between home and a regular place of work, so commuting to your own office counts.

The taxable benefit usually has two parts. The standby charge reflects having the car available: for an owned car it is generally 2% of the cost per 30-day period, and for a leased car two-thirds of the monthly lease cost. The operating expense benefit applies when the corporation pays running costs such as fuel, insurance and repairs; the prescribed rate for 2026 is $0.34 per personal kilometre. Repayments you make to the corporation can reduce both.

Illustrative example: a car costing $50,000 including tax is available to you all year. Before reductions, the standby charge is about 12 periods at $1,000, or $12,000. With 4,000 personal kilometres, the operating benefit is about $1,360. Reduced or simplified calculations may lower the figure, so treat this as a sense of scale, not a forecast.

Ways the benefit can be reduced

The standby charge can be reduced if all three conditions are met: the corporation required you to use the car for your duties, you drove it more than 50% for business, and personal driving does not exceed 1,667 kilometres per 30-day period or 20,004 kilometres in the year. If you do not qualify but the corporation owns the car and you use the same one all year, a simplified calculation may apply, at 24% of the cost less any reimbursement you made for the standby charge.

There is no benefit if there is no personal driving at all, you use the car only for work duties and it is returned to the premises at the end of each work day. For an owner who keeps a car in the driveway, that situation is uncommon, which is why the logbook matters.

Reporting and the risk of doing nothing

A taxable benefit is reported on a slip. If you are an employee of your corporation, it goes on the T4 under code 34 for personal use of an employer’s automobile, and payroll deductions generally apply. If you are a shareholder who is not an employee, it is reported on a T4A under code 028. The CRA also notes that GST/HST may need to be remitted on a benefit in certain situations.

Leaving the corporation to pay for a personally used vehicle without recording anything is the weak option. The CRA’s shareholder loan folio explains that where a corporation pays a shareholder’s personal expenses with no agreement to reimburse, the value may be included in the shareholder’s income. It is better to record the personal portion deliberately, as a benefit or a repayment, than to let it sit unexplained in the books.

GST/HST on the purchase

A corporation that is registered for GST/HST generally follows the primary use rule for passenger vehicles, which looks at whether the vehicle is used mainly in commercial activities. The part of a passenger vehicle’s cost that qualifies for an input tax credit is also limited by the same kind of capital cost limitation that applies for income tax. A vehicle that costs more than the limit does not produce credits on the excess.

Treat the credit as a separate question from the income tax deduction, and confirm the current amount for your purchase date before you rely on it. See our article on input tax credits for vehicles and home offices for the wider picture.

What happens when you sell

The sale is part of the decision. The CRA’s comparison shows that Class 10 vehicles are pooled and a sale can create recapture, while Class 10.1 vehicles are tracked individually, a half-year rule applies on sale and recapture does not arise. Neither class gives a terminal loss. If the corporation sells the vehicle to you or another related person, document the price and ask your accountant how it should be reported.

Keep the purchase contract, the odometer reading at purchase and sale, and the lender and lease statements. These are the records the accountant needs to open and close the vehicle schedule.

What to bring to your accountant

Before you buy, bring the expected price before tax, whether the vehicle is electric, your expected business and personal kilometres, whether you are an employee or only a shareholder, and how you plan to finance it. An accountant can compare ownership, a lease and an allowance using your numbers, and can tell you whether the benefit is likely to outweigh the deduction. Do not choose a vehicle on the assumption that a larger purchase always means a larger tax saving.