Expert guide on buying or leasing a company car in Canada. Learn tax implications, benefits, and comprehensive record-keeping requirements for your corporate vehicle.
Making the right choice about a company car isn’t just about picking the right model – it’s about making a smart business decision that balances tax benefits with practical needs. Here’s what you need to know about putting a vehicle in your Canadian corporation.
Buy vs. Lease a Company Car
Purchase Advantages:
- Build equity in the vehicle
- No mileage restrictions
- Freedom to modify for business needs
- Capital cost allowance deductions
- HST/GST input tax credits on purchase
Lease Benefits:
- Lower monthly payments
- Predictable maintenance costs
- Regular vehicle upgrades
- Simpler tax deductions
- Smaller impact on company cash flow
Critical Record-Keeping Requirements
Daily Vehicle Log:
- Starting and ending odometer readings
- Date and purpose of each business trip
- Destinations and routes taken
- Kilometers driven for business use
Expense Documentation:
- Fuel receipts with dates and locations
- Maintenance and repair invoices
- Insurance payments
- Lease or loan statements
- Parking and toll receipts
Best Practices:
- Use a digital tracking app or CRA-approved logbook
- Keep receipts for at least 6 years
- Take photos of paper receipts as backup
- Record personal use immediately
- Document business purpose for trips
Tax Considerations
Purchase Limitations:
- Maximum capital cost of $34,000 plus taxes
- Annual depreciation rate of 30%
- Restricted loan interest deductions
- Limited operating expense deductions
Lease Restrictions:
- Maximum lease payment of $900/month
- GST/HST recovery limitations
- Mileage penalty considerations
- Insurance cost implications
Personal Use Impact
Understanding personal use implications for a company car is crucial:
- Track business vs. personal kilometers
- Calculate taxable benefit for personal use
- Consider standby charges
- Document operating cost benefits
- Maintain detailed logbooks
Making the Smart Choice
Consider these factors:
- Annual business mileage
- Cash flow requirements
- Length of intended vehicle use
- Type of business activities
- Personal use expectations
Remember: The right choice for a company car depends on your specific business situation, tax position, and long-term plans. Consult with your accountant before making this significant business decision.
At IDM, our team of experts specializes in business tax planning and structuring for medium-sized companies. Contact us today to discuss how we can help you design a tax-efficient structure that aligns with your business goals and supports your long-term growth.
