One thing we know to be true about every single realtor is that you drive A LOT! Because of this, we need to make sure you are taking advantage of every vehicle deduction available to you.
Vehicle expenses in a PREC are treated a little differently from the time before you incorporated:
- My vehicle is in my personal name, not the PREC
No problem. You actually made things a little bit easier on yourself. All you need to do here is track your mileage. Your PREC can then reimburse you a per km rate for the business use of your vehicle every month or quarter. The reimbursement rate is non-taxable, as long as you don’t go higher than the CRA prescribed rates (currently 61 cents for the first 5,000 km and 55 cents for every km after that).
Also, did you know that you can claim HST back on this mileage reimbursement?
- My vehicle in my PREC’s name
In this case, your PREC pays for everything related to the vehicle. This includes fuel, insurance, lease or financing payments, car washes, etc. The PREC will also get to claim the HST you paid on these expenses as a reduction of the HST you charged on your commissions.
- What about the personal use of the PREC vehicle?
CRA has thought about this and you will be taxed on the personal use of your vehicle. This is called a standby charge and vehicle benefit, and is a taxable amount added to your T4 each year. This benefit is calculated using the original value or monthly lease amount of the vehicle and the percentage of personal kms driven during the year. It’s a fancy calculation so we won’t go into details here. Leave this to us to calculate with your T4s each year.
- To lease or to buy?
This is the most common question we are asked, and we have a great answer: It depends! Wasn’t that helpful? We say “it depends” because our answer is determined by your specific situation. First, we always look at what is better from a cash flow perspective. Sometimes there are killer financing deals and sometimes the leasing rates can’t be beat. When buying, you only get CCA (depreciation) on the first $30,000 of the price of the vehicle. When leasing you can only claim a lease payment of $800/month ($900 for vehicles leased in 2022) up to $30,000 in total monthly lease payments for the vehicle. Since realtors drive so much, we find that you often get a new vehicle every two or three years. If this sounds like you, it may be more beneficial to lease.