Can I keep my company vehicle when I sell my company’s shares?

In a share sale the company itself is what changes hands, so ask your lawyer how a vehicle you want to keep is to leave the company before closing. A transfer out is a disposition by the company, and the Income Tax Act looks at the price you pay against what the vehicle is worth. This page covers the federal tax tests only. Settle the figures with your accountant before the share purchase agreement lists what stays and what goes.

What the company is treated as receiving

Under Income Tax Act s.69(1)(b), a taxpayer who disposes of anything to a person not dealing at arm’s length for no proceeds, or for proceeds less than fair market value, is deemed to have received proceeds equal to that fair market value, except as expressly otherwise provided in the Act. Under s.251(2), a corporation and the person who controls it, if it is controlled by one person, are related persons, and s.251(1) deems related persons not to deal at arm’s length. So a low price from an owner to a company the owner controls does not lower what the company is treated as having received.

What the owner may be taxed on

Section 15(1) says that if a benefit is conferred by a corporation on a shareholder, the amount or value of the benefit is included in computing the shareholder’s income for the taxation year, subject to the exceptions listed in that section. Paying less than fair market value for a company vehicle is the kind of fact an accountant will test against that rule. Whether it is a benefit in your case depends on the price, the valuation and how the transfer is documented.

The depreciation history on the vehicle

CRA says that if a business claims capital cost allowance and later disposes of the property, it may have to add recapture to income, or it may be able to deduct a terminal loss. Section 13(1) tests recapture at the end of the taxation year for the whole prescribed class, not vehicle by vehicle, and s.20(16) sets the conditions for a terminal loss, subject to the exceptions in s.20(16.1), which include certain passenger vehicles. Ask your accountant which class the vehicle sits in and what else is in it. CRA also publishes cost rules for depreciable property acquired in a non-arm’s-length transaction, which matter if you will claim allowance on it personally.

What else to check before closing

• Whether GST/HST applies to the company’s transfer of the vehicle to you.
• Whether any provincial sales or transfer tax or registration rule applies. Ask your accountant and the provincial vehicle registry.
• Whether a lender or lessor holds security over the vehicle or must consent to the transfer.
• Whether the agreement treats the vehicle as an excluded asset, and when the transfer must happen.

For the wider picture, see how to carve out assets before closing and what CCA recapture is.