Determining whether a business owner should purchase a vehicle personally or corporately

MONDAY, JANUARY 9, 2023

When it comes time to acquire your next vehicle careful consideration should be given to whether it should be purchased corporately or personally.  Some general rules of thumb can help guide you to making the right big picture decision.

For many entrepreneurs, the bulk of their cash is inside corporations with very little extra cash in the owners’ personal hands.  This means that purchasing personal assets – such as a car – can be very expensive.  Removing the funds from the corporation requires a dividend and potentially a significant tax bill to fund the purchase. To drag cash out of the corporation results in a heavy tax bill, the cost of which is only partially offset when the shareholder is reimbursed for mileage.

The decision comes down to weighing the benefits of:

(a)    purchasing personally and getting reimbursed for company use versus

(b)  buying through your corporation and paying a personal use benefit.

To simplify the analysis, we have compared the costs under four scenarios:  low cost car, low business use; low cost car, high business use; high cost car, low business use and high cost car, high business use. We will outline the approximate percentage differences in cost in each of the four scenarios to determine what makes the most sense in your scenario. High business use refers to more than 50% business use and an expensive car refers to a vehicle with a cost in excess of $55,000.  Here is a quick summary of our findings:

For those looking to purchase a more expensive vehicle with a higher rate of business use, the decision is clear cut – purchase through your corporation. It’s also relatively clear that a lower cost, lower business use car makes more sense to be purchased personally. The other two scenarios are comparable in price and a decision should be made based on the specifics of your situation and preferences.

 If you do purchase corporately it is worthwhile to spend the time maintain a log showing your business miles so that you can prove the vehicle was used more than 50% for business.  And, remember the daily trip to the office does not count as business mileage.

 The decision to buy or lease a car, and whether to do it personally or through a corporation, can significantly impact the cost of the car. If you have any questions please reach out.