Leasing Your Truck to Your Corporation: Tax Strategy
Own your truck personally but run an incorporated business? Learn how to lease your truck to your corporation for tax benefits.
- You can personally own a truck and lease it to your corporation
- Rental income to you, deductible expense for corporation
- Fair market value rental rate is CRITICAL
- Improper structure can trigger CRA reassessment
- Document everything with a formal lease agreement
Why Lease Your Truck to Your Own Corporation?
You bought your truck before incorporating. Or maybe you want to keep the truck in your name for financing reasons. But your corporation is earning the income.
The Strategy: Personally own the truck, lease it to your corporation. Your corporation pays you rent, which is a deductible business expense.
- Keep truck financing in your personal name
- Corporation gets expense deduction
- Move money from corporation to you without payroll taxes
- Claim CCA on truck personally (or corporately, depending on structure)
- Flexibility in ownership vs operations
How the Tax Math Works
Scenario: Truck worth $150,000, monthly lease to corporation
Corporation Side:
- Pays $3,000/month lease to you personally
- $36,000/year is a deductible expense
- Reduces corporate taxable income by $36,000
- Tax savings: $36,000 ร 11% = $3,960
Personal Side:
- Receive $36,000 rental income
- Deduct: Loan interest, insurance, repairs, CCA
- If expenses = $30,000, net rental income = $6,000
- Tax on $6,000 at 30% = $1,800
Net Result: Corporation saves $3,960 in tax, you pay $1,800. Net family tax savings: $2,160
CRA's Fair Market Value Rule
CRA can reassess if the rent isn't at "fair market value." You can't charge $10,000/month for a truck that would rent for $3,000 on the open market.
How to determine fair market rental:
- Check commercial truck rental rates in your area
- Consider truck age, mileage, and condition
- Look at lease-to-own programs for comparison
- Document your research
Documentation Requirements
- Written lease agreement between you and corporation
- Fair market value appraisal or rental research
- Monthly invoices from you to corporation
- Payment records (cheques or transfers from corp to you)
- Truck registration showing personal ownership
- Insurance documents
- Parties: Your name and corporation name
- Truck description: Year, make, model, VIN
- Monthly rental amount
- Payment due date
- Who pays insurance, maintenance, fuel
- Term of the lease
- Signatures and date
Personal Deductions on Rental Income
As the truck owner receiving rental income, you can deduct these expenses on your personal tax return:
- Interest on truck loan
- Insurance premiums
- Repairs and maintenance (if you're responsible per lease)
- CCA (Capital Cost Allowance) - depreciation on the truck
- Property tax on the truck (if applicable)
Common Mistakes
1. No written agreement: CRA can deny the deduction entirely
2. Unreasonable rent: Too high = reassessment; too low = missed opportunity
3. No actual payments: Money must physically move from corp to you
4. Corporation claims CCA: Only the owner (you personally) can claim CCA
5. Forgetting to report rental income: It must be reported on your T1
When This Strategy Makes Sense
- You bought the truck before incorporating
- Better financing rates personally than corporately
- Want to keep truck separate from business creditors
- Planning to use truck in multiple businesses
- Want income splitting with spouse (spouse owns truck)
- Corporation can get good financing
- You want simplest structure possible
- Truck value is low (not worth the paperwork)
- You're not disciplined about documentation
Need Help Setting This Up?
Tax Punjabi can draft your lease agreement and ensure CRA compliance. Get it right the first time.
This article is for educational purposes only. Consult a tax professional before implementing this strategy.