Entrepreneurship & Small Business

Vehicle leasing for small business

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  • Nov 14th, 2017 1:43 pm
[OP]
Newbie
Aug 15, 2017
60 posts
14 upvotes

Vehicle leasing for small business

I know this is something that people always suggest I should speak to my accountant about but I find it odd and worrisome that small business owners themselves don't have info on this directly? Sooooo, I'm hoping you can help!

I will have a small business (I'm a dental specialist, starting my own surgery in the near future) and with that, my wife will also be an employee of the practice (she will be the manager, or some similar role). Basically, I don't know much of anything when it comes to deducting vehicle costs, etc. so while I have time to get this sorted, I want to know how best to proceed before I begin shopping for vehicles. I will be leasing/purchasing (although I have been told leasing is the best option) for both myself and my wife (we will be buying both vehicles at essentially the same time), so I am unclear if both of these vehicles can be business vehicles? They won't be just going to work and back; as a specialist, I have to network and do a fair bit of weekly travel to meet GP's, lunches/dinner's, study clubs, conferences, etc. For my wife, it would be similar but less so. I guess I should break down my questions, so here goes:

(1) can we both have business vehicles with some level of deduction on both?

(2) if not, and we could only have one company vehicle, am I correct to assume that I should choose the more expensive of the two to be the company vehicle? Clearly, I understand that the actual "company use" vehicle should be the company vehicle but you understand what I'm asking, I think

(3) does it matter what the vehicle is? In that, will having a high performance car matter vs. a pickup truck, for example? I don't know, just throwing things out here...does the CRA frown upon say a Challenger Hellcat as a company car? Again, just using examples, no one is buying a Hellcat just yet, LOL

(4) assuming one or both are company vehicles, can I also use them for personal stuff, like driving to the grocery store, holidays, etc? My guess is I need a log book to track these things, which makes sense.

Have a missed an obvious question? Please share whatever knowledge you may have, I'm all ears Grinning Face With Smiling Eyes I'm most curious how much of a lease payment can be deducted against the company (I'm guessing that is how it works right??? We will both be paid employees of the specialist "company" earning a wage)

Thank you
22 replies
Deal Addict
Feb 5, 2009
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Newmarket
I will give you some write down and you can apply what you need to yourself.

There is plenty of info on the subject, you just have to google. Having a company you should have the accountant regardless (you could do without one if you are not incorporated) so why now pick his or hers brain.

Leasing is not necessarily best option, IMO lease v purchase depends if you want to switch cars often (ei every 4 years or less) then you should lease, if you want to run the car down to the ground then purchase.

There is a limit how much you can deduct, up to $800 per month lease, or up to $30,000 purchase, anything above that is non deductible for tax purposes. You will not deduct more if you buy a Porsche than if you would for Honda (unless you purchase Honda for less than $30k before taxes).

Now assuming you are incorporated, comes the questions who should purchase the cars, you personally or the corporation.
Typically if the car is used 90% or more for business purposes it is better to purchase it in the corporation, if less than personally, it has to do with the fact that the personal use of the automobile owned by the corporation becames personal benefit and has to be reported on the individual income tax, and T4 has to be issued for the benefit amount.

google cra small business vehicle, lots of info available.
Newbie
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Nov 18, 2012
24 posts
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Vancouver
Homerhomer pretty much covered it. I'm an accountant and I get asked this exact question a lot. In addition to what was said, I generally advise people to focus their purchase on what's best for their business rather than thinking primarily about how to maximize your expenses/deductions/writeoffs (whatever term you want to throw in there) since as a Canadian you get capped. $30k doesn't get you as many options as it used to.
Homerhomer wrote: I will give you some write down and you can apply what you need to yourself.

There is plenty of info on the subject, you just have to google. Having a company you should have the accountant regardless (you could do without one if you are not incorporated) so why now pick his or hers brain.

Leasing is not necessarily best option, IMO lease v purchase depends if you want to switch cars often (ei every 4 years or less) then you should lease, if you want to run the car down to the ground then purchase.

There is a limit how much you can deduct, up to $800 per month lease, or up to $30,000 purchase, anything above that is non deductible for tax purposes. You will not deduct more if you buy a Porsche than if you would for Honda (unless you purchase Honda for less than $30k before taxes).

Now assuming you are incorporated, comes the questions who should purchase the cars, you personally or the corporation.
Typically if the car is used 90% or more for business purposes it is better to purchase it in the corporation, if less than personally, it has to do with the fact that the personal use of the automobile owned by the corporation becames personal benefit and has to be reported on the individual income tax, and T4 has to be issued for the benefit amount.

google cra small business vehicle, lots of info available.
[OP]
Newbie
Aug 15, 2017
60 posts
14 upvotes
604paladin wrote: Homerhomer pretty much covered it. I'm an accountant and I get asked this exact question a lot. In addition to what was said, I generally advise people to focus their purchase on what's best for their business rather than thinking primarily about how to maximize your expenses/deductions/writeoffs (whatever term you want to throw in there) since as a Canadian you get capped. $30k doesn't get you as many options as it used to.
Thanks as well. I was hoping an accountant would chime in ;-) As was said, the $30k, is that total purchase price, or per year? In that, if I am financing, can I finance up to $30k per year, which would be nice.

By the sound of it, leasing would be better. At $800 a month, it gives me a fair bit of options. I'll have to look into this more in the future. Cheers
Deal Expert
Aug 2, 2004
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East Gwillimbury
I recommend the lease. You can claim the amount against your business income and you only pay tax on the portion you lease. Since you are front facing with clients, it makes sense to change cars every few years. You wouldn't appear successful if you're driving a 10 year old car to meet a client.

I was led to believe that if you purchase a car, you can only claim the depreciated amount every year. You can probably claim the interest paid but that negligible and the biggest draw back is you pay the tax on the full amount of the car.
[OP]
Newbie
Aug 15, 2017
60 posts
14 upvotes
Gee wrote: I recommend the lease. You can claim the amount against your business income and you only pay tax on the portion you lease. Since you are front facing with clients, it makes sense to change cars every few years. You wouldn't appear successful if you're driving a 10 year old car to meet a client.

I was led to believe that if you purchase a car, you can only claim the depreciated amount every year. You can probably claim the interest paid but that negligible and the biggest draw back is you pay the tax on the full amount of the car.
Would you happen to know if the $800 per month maximum is with taxes included or before taxes?

And yes, I agree, having a nice car is both beneficial to me when I meet colleagues and it's nice to be able to have a new car every few years, for personal reasons.
Deal Expert
Aug 2, 2004
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East Gwillimbury
TheSpandexSuplex wrote: Would you happen to know if the $800 per month maximum is with taxes included or before taxes?

And yes, I agree, having a nice car is both beneficial to me when I meet colleagues and it's nice to be able to have a new car every few years, for personal reasons.

I'm pretty sure it is before taxes
Deal Addict
Feb 5, 2009
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Gee wrote: I recommend the lease. You can claim the amount against your business income and you only pay tax on the portion you lease. Since you are front facing with clients, it makes sense to change cars every few years. You wouldn't appear successful if you're driving a 10 year old car to meet a client.

I was led to believe that if you purchase a car, you can only claim the depreciated amount every year. You can probably claim the interest paid but that negligible and the biggest draw back is you pay the tax on the full amount of the car.
But that's the thing, how can you recommend anything to OP since we don't know much anything about his business other than the business hasn't even started yet, and by default hasn't made any money yet?
Sales tax may or may not be a factor, again we don't know enough to determine if it is, assuming his business is not gst exempt, is incorporated, has purchased auto for under $30K, and is using it for business more than 50%, he can claim the full amount of ITC on his next sales tax filing, and not even a penny out of pocket.
Deal Addict
Feb 5, 2009
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TheSpandexSuplex wrote:

And yes, I agree, having a nice car is both beneficial to me when I meet colleagues and it's nice to be able to have a new car every few years, for personal reasons.
And that's why cra puts a limit on the price, personal reasons or appearance are not income producing factors, hence not deductible.
[OP]
Newbie
Aug 15, 2017
60 posts
14 upvotes
Homerhomer wrote: And that's why cra puts a limit on the price, personal reasons or appearance are not income producing factors, hence not deductible.
Thanks mate, I'll keep all of this in mind when I speak to my accountant.
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Jul 12, 2003
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TheSpandexSuplex wrote:
And yes, I agree, having a nice car is both beneficial to me when I meet colleagues and it's nice to be able to have a new car every few years, for personal reasons.
Everyone want a nice car, either personal reason or business reason. lol

Have fun for car shopping, good luck. :)
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Nov 18, 2012
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Vancouver
Gee wrote: I recommend the lease. You can claim the amount against your business income and you only pay tax on the portion you lease. Since you are front facing with clients, it makes sense to change cars every few years. You wouldn't appear successful if you're driving a 10 year old car to meet a client.

I was led to believe that if you purchase a car, you can only claim the depreciated amount every year. You can probably claim the interest paid but that negligible and the biggest draw back is you pay the tax on the full amount of the car.
I don't necessarily agree.... pure numbers.. yes that is correct. But you should really make the choice on your business. For some realtors for instance who cater to only high end clients, yes, having a nice car every few years definitely gives them the image they need. Doesn't really look good if you drive a Hyundai and you're trying to sell someone a $8M home. However, a realtor who caters mainly to say first time home buyers would probably not appreciate it much if their realtor drove them around in a $100k+ car. And yes, I do know realtors in both the exact same scenarios I just mentioned.

In my past experience, I remember a sales guy telling me about flying into Calgary to negotiate a deal with a large company, and then getting mad at the car rental company for giving him a free "luxury" vehicle upgrade (A hummer) because it was the only thing they had. So he ended up parking 3 blocks away from the meeting and walking it because he didn't want them to see him in that car.. didn't want to appear "rich" .
[OP]
Newbie
Aug 15, 2017
60 posts
14 upvotes
604paladin wrote: I don't necessarily agree.... pure numbers.. yes that is correct. But you should really make the choice on your business. For some realtors for instance who cater to only high end clients, yes, having a nice car every few years definitely gives them the image they need. Doesn't really look good if you drive a Hyundai and you're trying to sell someone a $8M home. However, a realtor who caters mainly to say first time home buyers would probably not appreciate it much if their realtor drove them around in a $100k+ car. And yes, I do know realtors in both the exact same scenarios I just mentioned.

In my past experience, I remember a sales guy telling me about flying into Calgary to negotiate a deal with a large company, and then getting mad at the car rental company for giving him a free "luxury" vehicle upgrade (A hummer) because it was the only thing they had. So he ended up parking 3 blocks away from the meeting and walking it because he didn't want them to see him in that car.. didn't want to appear "rich" .
Valid points, indeed. It's a bit of a catch 22 with my situation in that I will be opening a dental specialist surgery. While I would like a nice car (because who doesn't and I think I deserve it, without a need for an explanation) I also believe that my referring dentists would expect no less. It would give the wrong image to show up in an econo box, IMO.

But then you have the public who are also my patients. While on the one hand, I don't want to hand someone a bill for $10k while I run off to my Porsche, I also think that my patients would be put off, if I drove the econo box. It would imply a lack of success and therefore, skill. I would assume a successful surgeon is a good surgeon. I could also be wrong, lol

Either way, Im not looking to buy a Ferrari or such. Something to treat myself, and have fun. Id much rather give my kids $50k each for a down payment on a house, education, wedding, etc. vs dropping that coin on a ultra high end vehicle. I'd feel too guilty, lol
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Nov 18, 2012
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TheSpandexSuplex wrote: Valid points, indeed. It's a bit of a catch 22 with my situation in that I will be opening a dental specialist surgery. While I would like a nice car (because who doesn't and I think I deserve it, without a need for an explanation) I also believe that my referring dentists would expect no less. It would give the wrong image to show up in an econo box, IMO.

But then you have the public who are also my patients. While on the one hand, I don't want to hand someone a bill for $10k while I run off to my Porsche, I also think that my patients would be put off, if I drove the econo box. It would imply a lack of success and therefore, skill. I would assume a successful surgeon is a good surgeon. I could also be wrong, lol

Either way, Im not looking to buy a Ferrari or such. Something to treat myself, and have fun. Id much rather give my kids $50k each for a down payment on a house, education, wedding, etc. vs dropping that coin on a ultra high end vehicle. I'd feel too guilty, lol
Lol, yeah - it is definitely a catch 22.... funny things work. You make the money and you want to spend it and treat yourself but you also don't want to show it off in a way that might off put people. I read an article about a lawyer who had chosen to purchase a Tesla Model 3 versus a model S for that reason... to find that "middle" point as she was a Lawyer but advocated for mainly Not for profit groups.
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TheSpandexSuplex wrote: Id much rather give my kids $50k each for a down payment on a house, education, wedding, etc. vs dropping that coin on a ultra high end vehicle. I'd feel too guilty, lol
I'm in the same boat. I am customer facing and I lease. I get a new car every 4 years and I could get the Benz, BMW etc. But I chose to drive something a lot more modest. My price range is anything under $35,000, I rather give all the disposable cash to my kids.

Drive something too expensive and customers think your making a fortune from them, drive a Hyundai and they question your ability in your chosen profession.
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Oct 1, 2011
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We're in the market for a new vehicle and I would like to get something for business use, but also a larger SUV or van that can double as a family vehicle when we visit family who live 3hrs away or cottage trips.
Now I realize this is also a bit of a catch 22 as well, where the more family trips we make, that will be personal use and eat into potential deductions - so my question was - are there any tips in maximizing business use mileage?

Our business has a primary location and we also have to drive to clients houses for service and deliveries. From what I've read and understand, commuting to and from work is personal use, but going from work to a clients and then from the clients to your home, those trips would be considered business use? I was thinking of using the vehicle for all direct visits to clients and back as well as using it on days when seeing clients before or after going to our physical office location would make sense. On days traveling just to the office and back (personal use) we'd use our old commuter vehicle. Obviously distances will come into play, but does this make sense?

I'm also wondering, to offset personal mileage - if you had to go to a conference in Montreal from Toronto (and brought your whole family along - but a legit conference visit) I assume the to and from mileage would be considered business use? And I'm guessing if you did something like seeing a client in Muskoka (out of our regular service area) and then going to the cottage, the CRA would call BS on something like that?

I plan to track all mileages with an app and keep a log, just trying to figure out best way to maximize business deductions and do it legally while still being able to get some family use out of the vehicle.
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If leasing a car for incorporated business, does it matter whether to start leasing in beginning of calendar year or business fiscal year? What's the reason or reasons behind this? TIA
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Gee wrote:
and they question your ability in your chosen profession.
Probably an beat up Accent, but not if you driving the new Genesis 3.8. It is a very elegant vehicle.
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