How to Switch a Car’s Ownership from Personal to Business in Ontario?
Switching a car’s ownership from personal to business can be a crucial decision for many Ontario residents. Whether you are a sole proprietor or a small business owner, this process requires careful consideration and understanding of the steps involved. In this article, we will guide you through the necessary information and procedures to ensure a seamless transition.
Understanding the Basics of Car Ownership Transfer in Ontario
Car ownership transfer involves moving the ownership rights of a vehicle from one entity to the other. However, we will focus on the switch from an individual to a business entity. This allows the vehicle to be used for business purposes, providing certain tax advantages and liability protection.
In Ontario, you need to complete a specific form for the transfer, known as the Sworn Statement for the Transfer of a Used Motor Vehicle. You can obtain this form from the Ministry of Transportation or download it from its website. It requires detailed information about the vehicle, the current owner and the new owner.
Once you have filled out the application form, you will need to submit it along with the necessary documents to the Ministry of Transportation. Its staff will review the application and process the transfer. You must pay a $32 fee as per the current fee schedule when submitting your application.
Why Switch Car Ownership from Personal to Business?
Business owners have several reasons to switch car ownership from personal to their businesses. Firstly, it allows you to separate your personal and business assets, reducing potential liability. By having the vehicle registered under your business, any accidents or damages that occur while using the vehicle for business purposes may be covered by your business insurance, protecting your personal assets.
In many cases, a business starts out as a small sole proprietorship where the owner’s property and taxes stay intertwined. At some point, the income levels and scale of the business make it logical to separate them. Therefore, moving an asset like a car makes perfect sense.
Typically, entrepreneurs change their car ownership from personal to business to seize upon lower tax opportunities. It allows them to claim and deduct more car-related expenses. Further, it creates distinct advantages with pre-tax dollars for people in specific income brackets.
However, consult with a tax professional to understand the specific tax implications in your situation and ensure that you follow all the necessary regulations.
Preparing for the Ownership Transfer
Once you’ve determined that transferring the car’s ownership to your business is the right move, prepare for the complexities ahead. The process involves a series of steps and requirements to ensure a smooth transition. By understanding the necessary documents and evaluating the cost of ownership transfer, you can navigate this process with confidence.
Necessary Documents for Ownership Transfer
Before initiating the transfer process, collect all the required documents. You will typically need the vehicle’s ownership transfer application form, the original vehicle permit and a safety certificate (if applicable). These documents serve as proof of ownership and reliability.
However, specific documents may vary depending on your unique circumstances. To ensure you have all the necessary paperwork, consult the Ontario Ministry of Transportation or Service Ontario for a comprehensive list. They can provide you with the most up-to-date information and guide you through the process.
Evaluating the Cost of Ownership Transfer
When switching a car’s ownership, the $32 transfer fee is the easy part. Determining the fair market value of the car marks a far more complex set of factors.
If you set this value too high, the difference between it and the car’s depreciated cost of the asset can create inadvertent tax consequences. To help, the Canada Revenue Agency (CRA) allows businesses to defer the transfer from an owner to a business at a lower price. In essence, the owner doesn’t get penalized by using the same car in the same business. They just reframe the ownership of it.
To qualify for the tax deferral, the price must fall lower than fair market value and the person making the transfer must own a share of the business. Capture all this in an election form (Form T2057), sign in then file it with the CRA. Choose the tax-filing date of the person or the business – whichever one comes later in the year.
Of course, sales tax may still apply, which adds another level of calculation. In Ontario, the HST is based solely on the purchase price of the vehicle. Meanwhile, the provincial sales tax applies to the greater amount between the purchase price or the wholesale value of the vehicle as listed in the Used Vehicle Information Package.
In addition to government fees, consider any potential charges that may arise during the transfer process. These charges can include fees for professional assistance, such as consulting a lawyer or an accountant. By factoring in these costs, you can budget accordingly and avoid any unexpected financial burdens.
By taking the time to gather the necessary documents and evaluate the costs, you ensure a seamless transition of ownership. This preparation will save you time and effort while providing peace of mind knowing that you’ve fulfilled all the requirements.
Steps to Switch Car’s Ownership from Personal to Business
Now, let’s dive into the step-by-step process of switching a car’s ownership from personal to business in Ontario. In this section, we will walk through each step, providing all the necessary details to ensure a successful transfer.
Initiating the Transfer Process
The first step is to complete the ownership transfer application form. This form is available online or at any Service Ontario location. Most importantly, fill out all the details accurately, including the vehicle identification number (VIN), make, model and your business’s information. The accuracy of this information matters, as any mistakes or omissions can delay the transfer process.
Once you have completed the application form, you will need to gather the required documents. These documents typically include:
- Proof of ownership, such as the original vehicle permit
- Proof of business ownership, such as a business registration or articles of incorporation
- Proof of insurance coverage for the business
- Valid identification
- A safety standards certificate
Once you have gathered all the necessary documents, you can submit the application along with the required documents to Service Ontario. Ideally, make copies of all the documents for your records.
Completing the Transfer at Service Ontario
After submitting the application, you will be required to visit a Service Ontario location to complete the transfer process. Try to schedule an appointment in advance to avoid long wait times.
At the Service Ontario office, you’ll need to provide the original vehicle permit and sign the necessary documents. The officer will review the application and verify the documents. They may ask you additional questions to confirm the legitimacy of the transfer.
Once the officer is satisfied with the application and all the necessary documents, they will process the transfer. This involves updating the vehicle’s registration, insurance and ownership records to reflect the change in ownership from personal to business.
Upon successful completion of the transfer, the car’s ownership will officially be transferred to your business’s name. You will receive a new vehicle permit and ownership documents reflecting the updated information.
By following these steps and ensuring that all the necessary documents are accurately filled out and submitted, you can successfully switch your car’s ownership from personal to business in Ontario. Remember to keep copies of all the documents for your records.
Congratulations! You’ve successfully transferred your car’s ownership to your business. However, the process doesn’t end here. You still have a few crucial steps to take.
Now that the business official owns your car, consider the various aspects that come with this change. Let’s delve into some additional details that will help you navigate this new chapter.
Notifying Your Car Insurance Company
After the ownership transfer, inform your car insurance provider about the change. This step ensures that your car gets properly covered under your business’s commercial insurance policy. It also clears you of personal liability in the case of a collision.
Providing your insurance company with the updated details of the car’s ownership will allow them to adjust your policies accordingly. At this point, you could get a few quotes before transferring the car insurance with the same company. You may end up paying less with a different insurer.
When updating your insurance information, consider any potential changes in coverage or premiums. Your insurance provider may need additional information about your business, such as its structure and the car’s purpose within it. This will help them assess the level of risk associated with your business’s vehicle use and provide appropriate coverage.
Understanding Tax Implications
Transferring ownership of your car to your business can have vital tax implications. This summary serves as a high-level primer. A tax professional who can guide you through the process and ensure that you comply with any reporting requirements.
Let’s take a look at an example of a business owner’s costs and taxes versus a corporate ownership. In this case, the owner uses a company car for business 70 percent of the time and personal use the remaining 30 percent. That means she can only claim deductions on her personal taxes based on her 30-percent use.
Meanwhile, the business claims 100 percent of the vehicle costs as a deduction. It also pays with before-tax dollars (before taxes get deducted and make that amount lower). Further, these tax implications apply:
- An owner pays 26 percent in taxes if her income stands between $100,392 to $155,625. Comparatively, the net tax rate for businesses is much lower at 15 percent. This also impacts the level of deductions.
- For every expense with HST applied, the business can claim that amount as well. This includes fuel, maintenance and accessories.
- The business can tap into the benefits of a standby charge when staff use the vehicle for personal use. This charge equals two percent of the vehicle’s cost times the number of months employees drive it. The amount is also based on the number of kilometres.
However, the business will likely pay higher insurance premiums, so factor that into the equation. When discussing the tax implications, your accountant will consider various factors, such as any potential deductions or credits. They will help you understand how this ownership transfer may affect your business’s tax situation and guide your decisions.
Switching a car’s ownership from personal to business can have various implications, including tax considerations and insurance requirements. Therefore, consult with a legal or financial professional to fully understand the implications and requirements specific to your business.