What is a company car?

A company car is a vehicle your business owns or leases for work use, but it may also serve personal needs. Some stay at the office until required for deliveries, site visits or client meetings, while others are take-home vehicles for daily commuting. Which employees get a company car depends on your industry, roles and business goals.

What to consider before providing a company car

Canadian tax and insurance rules depend on whether the employee uses the vehicle for business or personal purposes, which affects auto insurance, deductions and taxable benefit calculations. The Canada Revenue Agency (CRA) defines personal use as trips from the office to home, as well as errands such as lunch, groceries or coffee. Business use includes deliveries, client meetings, site visits and out-of-town travel. Keeping careful mileage records is essential for compliance and savings.

Company cars and taxes

In Canada, you may claim a Capital Cost Allowance (CCA) to deduct vehicle expenses. For business-purchased vehicles, the maximum CCA limit is $37,000 for gas vehicles and $61,000 for zero‑emission models. Leasing allows for monthly deductions of $1050. You can also deduct the following expenses:

• insurance
• registration
• fuel, oil and maintenance
• parking and repairs
• up to $300/month interest on car loans

You then add any taxable benefits for personal use, calculated through a standby charge (2% of the vehicle cost per 30 days) and an operating cost benefit (either 50% of the reduced standby charge or $0.34/km).

Standby charge

This charge applies when the car is available, whether an employee uses it or not. For a $25,000 vehicle used all year, the charge is:

$25,000 × 0.02 × 12 = $6,000.

You can reduce this charge if personal use is under 1,667 km/month and business travel exceeds 50%. The reduced formula multiplies the standby amount by a reduction ratio (personal km ÷ (1,667 × months)). In our example, 6,000 personal km yields:

BRR = 6,000 ÷ (1,667 × 12) ≈ 0.30
Reduced standby = $6,000 × 0.30 = $1,800

Operating cost benefit

Operating costs refer to the benefits the driver receives, as the employer pays for vehicle repairs, maintenance, fuel, insurance and other expenses related to personal and business use. The CRA states the operating cost benefit should be the lesser of half of the reduced standby charge or 34 cents per personal kilometre (updated from 28 cents). For example:

• If the reduced standby charge is $1,799.40, half of that is $899.70
• If the driver logged 6,000 personal kilometres, the calculation at 34 cents/km is $2,040.

You would use $899.70 for the operating cost benefit plus the reduced standby charge of $1,799.40, totalling $2,699.10 on the aggregate T4.

Tracking usage and record‑keeping

You record the start/end odometer readings, dates, locations, business kilometres and trip purpose. Good logs typically support lower standby rates and tax deductions.

Pros and cons of providing company cars

The following pros and cons can help you decide whether to provide your employees with a company car.

Pros

The advantages of providing a company vehicle include:

• Free advertising: Most company vehicles display a business name, logo, phone number and e-mail address that promote brand recognition and reduce advertising expenses.
• Greater control: You have more say in what your employees can or can’t do when driving a company car.

• The economy of scale: The more vehicles in your fleet, the better the discounts for leases or purchases of new cars, insurance rates, maintenance, outfitting, graphic design and repairs.

• Employee rewards: May improve motivation, engagement, incentives and productivity.

• Specialized vehicles ensure safety: Supplying specialized vehicles for transporting equipment, personnel or products mitigates risk, damage and loss and does not rely on employee vehicles that may not be up to standards.

Cons

The disadvantages of providing a company vehicle can include:

• Upfront expenditure: You can incur considerable costs upfront when purchasing company vehicles, which can be especially challenging for small businesses.
• Higher risk: You will require more liability insurance. You risk lawsuits and high legal bills in case of a serious accident involving a company vehicle. If a company vehicle is involved in an accident, it can lead to increased liability, higher legal costs and additional insurance coverage.
• Influence on cash flow: You may incur high maintenance and repair, or replacement fees if the vehicle is stolen or totalled in an accident.
• Idle fleet costs: When a company car sits idle, it costs you money as you must still pay fixed expenses, such as insurance, lease or loan payment and maintenance.
• Cyber risks: Depending on your business and the type of vehicles in your fleet, there may be risks with data breaches on computerized equipment that could leak customer or corporate data.

How car allowances work

Instead of providing vehicles, many businesses offer car allowances, which are fixed payments that allow employees to use their own cars. Allowances can save you admin time and still provide tax-deductible benefits if managed correctly.

Pros:

• easy to implement and adjust
• avoids fleet management hassles
• no logbooks if employees follow CRA mileage rates
• saves HR processing time

Cons:

• hard to set fair allowance rates
• must track mileage to comply with CRA tax concerns
• employees still needing to follow vehicle insurance and safety standards

Maintenance, repairs and disposal of company cars

You can keep your fleet operating optimally with scheduled maintenance, including oil changes, tire rotations and inspections. Consider partnering with a fleet management firm to manage repairs and ensure safety compliance. When it’s time to retire or replace a vehicle, options include private sale, trade-in, auction or employee offer. Follow CRA guidelines for disposal to avoid unexpected tax burdens.

Insurance and liability

You can protect your fleet with commercial auto insurance or fleet policies. While premiums may be higher, adhering to safe driving rules and undergoing regular audits on coverage can help reduce financial risks. You can claim some insurance expenses as business deductions.

Best practices for managing company vehicles

To optimize benefits and control costs, you can:

• Set clear company car policies and define personal vs. business use.
• Require driver training and safe-driving standards.
• Monitor mileage, fuel and maintenance records for tax compliance.
• Review fleet insurance annually.
• Consider car allowances or mileage reimbursement for non-fleet situations.

Common mistakes to avoid:

• incomplete mileage or maintenance records leading to lost deductions.
• no defined usage policies causing misuse
• skipping regular maintenance leading to breakdowns
• underinsured vehicles increasing liability risk
• overlooking logbooks or CRA guidelines, causing tax issues

Company vehicles can offer significant advantages, including marketing exposure, employee benefits, risk control and operational flexibility. However, they require rigorous tracking, awareness of CRA rules and adherence to reasonable maintenance and insurance practices to deliver value. Choose between a fleet or car allowance based on your business size, industry, and goals, and treat company cars as strategic assets, not just perks.