Entrepreneurship & Small Business

Leasing a car: Personal vs Corporation?

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  • Aug 29th, 2014 4:14 am
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[OP]
Member
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Apr 22, 2005
450 posts
12 upvotes

Leasing a car: Personal vs Corporation?

I am a consultant with an incorporated company. I drive to client sites frequently. I need to change my car. So my choices are
a. Lease car in personal name, reimburse with mileage
b. Lease car in business name, calculate total expenses and take a % as personal use.

Ofcourse, I have the options to buy in cash or finance it for personal name but keeping those aside.

Two questions:
1. My accountant repeatedly tells me to go with option a. I feel that my driving around on a monthly basis may fluctuate (800 to 1500 km per month) and not be high enough. What am I missing from the picture to understand why my accountant suggests option a?
2. Insurance: If I lease in company name, I understand I need to get commercial insurance. I do have to make the call to my insurance company to understand this but is there a big difference in commercial vs personal insurance? And yes, I am still researching it as well.

Anything else I should be considering here?

Thanks!
:twisted:
12 replies
Deal Addict
Aug 19, 2013
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shahn2 wrote:
Jul 19th, 2014 3:53 pm
I am a consultant with an incorporated company. I drive to client sites frequently. I need to change my car. So my choices are
a. Lease car in personal name, reimburse with mileage
b. Lease car in business name, calculate total expenses and take a % as personal use.

Ofcourse, I have the options to buy in cash or finance it for personal name but keeping those aside.

Two questions:
1. My accountant repeatedly tells me to go with option a. I feel that my driving around on a monthly basis may fluctuate (800 to 1500 km per month) and not be high enough. What am I missing from the picture to understand why my accountant suggests option a?
2. Insurance: If I lease in company name, I understand I need to get commercial insurance. I do have to make the call to my insurance company to understand this but is there a big difference in commercial vs personal insurance? And yes, I am still researching it as well.

Anything else I should be considering here?

Thanks!
If you have the car thorough your corporation you will have a taxable benefit on the personal portion (standby charge). I usually agree with putting it your personal name and claiming mileage. As long as the mileage is considered reasonable it is tax free. Them you don't put any car expenses through the company. You just pay yourself each month based on what you have driven. If your not driving a very expensive car what you pay yourself should more then pay for the business use of the vehicle.

Also if you are driving your vehicle for work you should have business coverage on your vehicle even if it is in your name. I have business coverage on my vehicle and it really doesn't cost very much. You can also have your comp at reimburse you for the additional cost of having supplementary business insurance and this amount is also received tax free.
Deal Addict
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Aug 5, 2011
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YF
So if he gets commercial auto policy, can he still drive the car for personal use?
Member
Jan 17, 2014
311 posts
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Woodbridge
I leased my work car through my personal name and just added 'business' insurance on it. That allows me to be covered to visit clients but I can't deliver / transport any dangerous products. It added about $400 a year to my insurance. I thought that it was steep but I'd hate to be in a situation where I needed it and didn't have it.

I would also suggest a dash cam. See why at this other RFD thread - DASHCAMs
~ We need a special keyboard shortcut to reflect sarcasm ~
Deal Addict
Aug 28, 2007
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Calgary
IMWHFMPC wrote:
Jul 20th, 2014 8:12 pm
So if he gets commercial auto policy, can he still drive the car for personal use?
Yes, it is just like he has a "rider" on his personal policy, for which he pays an increase in his premium. Without it, if he has an accident and his insurance company finds out he has additional "risk" of driving it for business, they can get out from under any claim responsibility; their most common trick!

Like Mom of 3 Cuties and your accountant, I also recommend option A as the best choice. The three reasons are:

i) paying the tax on the taxable benefit under option B when the car is doing nothing will reduce the gains you get driving business kilometres.
ii) commercial insurance is more expensive than personal insurance even with the "driving part-time for business" rider added.
iii) your financing options for personal are more flexible than business. As soon as you put the word "business" in front of anything the price usually triples. Examples include leases, space rentals, bank accounts, loans, mortgages, insurance and so on.

OP: The CRA mileage rate for reimbursement is a reasonable approximation of what it costs to operate a vehicle (especially a modest one as mentioned by MomOf3Cuties) and even if you only drive 1 kilometre a month it is tax-free money into your pocket. So I don't understand, why you fear not driving enough kilometres for this no-fuss method.
Jr. Member
Feb 18, 2010
130 posts
35 upvotes
MISSISSAUGA
I would also suggest going with option A.

The CRA has an Automobile Benefits Online Calculator available for free on the web that you can use to calculate taxable benefit that you can expect to have if you go with option B. Why don't you check it out?

- Allan
Deal Fanatic
Aug 29, 2006
7614 posts
1503 upvotes
I kinda fail to see the advantage to even lease a new vehicle then, wouldn't OP be better off driving a beater since he is only getting mileage back either way ??

Unless he is able to expense the cost of the lease as a company benefit to himself too ?
The Devil made me buy it - RFD. :twisted:
Deal Addict
Aug 19, 2013
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Abel4Life wrote:
Jul 22nd, 2014 8:44 pm
Can you do option A as a Sole Prop?
No you can not. As a sole prop you simply keep track of your expenses and the percentage you use the vehicle for business use. You then claim that percentage of the expenses. You will not have a taxable benefit.

I have seen some bad accountants tell people that they can just claim a vehicle expense based on a per km rate but they are incorrect.
[OP]
Member
User avatar
Apr 22, 2005
450 posts
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My thanks to everyone for your responses.
I ended up getting the car in personal name and will use mileage for compensation.
I also added the rider on my personal policy that I use my car to visit clients and it cost me about $250 per year more on the policy.
:twisted:
Newbie
Aug 5, 2014
13 posts
1 upvote
Kitchener, ON
1) Anyone knows where to get the mileage compensation rates for each fiscal year (historical rate)?

2) What type of info you need to keep in order to justify the mileage ? If I can prove for example that I went to the bank to make a deposit do I need to write the km of the car or I can just log the total km I drove for the trip ?

Thanks.
Member
Jun 7, 2010
204 posts
19 upvotes
Newby101 wrote:
Aug 9th, 2014 12:04 am
1) Anyone knows where to get the mileage compensation rates for each fiscal year (historical rate)?

2) What type of info you need to keep in order to justify the mileage ? If I can prove for example that I went to the bank to make a deposit do I need to write the km of the car or I can just log the total km I drove for the trip ?

Thanks.
Regarding # 2, I use my outlook calender to record everything including Starting point address, Destination Address, Purpose (business meeting for reason xyz with client abc), mileage driven. I have used this to show CRA in audit situation and they did not have any issue with it.

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