Oilfield Consultants; Owning vs Renting/Leasing Trucks

[Keeleclimber]

I'm a consultant in the oilfield, and I wondering if I would be better off renting or leasing a truck to work with rather then driving my personal truck.
My personal truck is a 1ton.
I'd prefer to drive a 1/2ton for work.
Does anyone have any insight to the pros/cons for owing vs renting or leasing a truck for work?
My understanding is that renting a truck is 100% right off.
Thanks

[4thredneck]

Do you get paid for your truck?

[Blastoff]

The only person I would ask is your Accountant they would have the real numbers

[hal53]

Originally Posted by Keeleclimber

I'm a consultant in the oilfield, and I wondering if I would be better off renting or leasing a truck to work with rather then driving my personal truck.
My personal truck is a 1ton.
I'd prefer to drive a 1/2ton for work.
Does anyone have any insight to the pros/cons for owing vs renting or leasing a truck for work?
My understanding is that renting a truck is 100% right off.
Thanks

I did both, however I only leased one and I bought an xtra 75k and it was still miled out a year before the lease was up.Then it gets expensive ( this was 10-12 years ago). After that I just bought thru my company and got the "no interest" for "X" amount of years. Depending on where youre working from home it will depend which is your best option. If you have a good accountant they can steer you in the direction that best suits your situation.

[Dean2]

I wasn't an oilfield consultant but we did have a lot of guys that travelled extensively. We had a mix of company owned vehicles they could use, personal owned that were paid mileage, some guys owned, some financed and some leased. We had an accountant on staff that would analyze which option was the right one for each person. It varied greatly based on vehicle, total miles driven, length of time vehicle was kept, actual operating costs of the particular vehicle and a few other factors.

One example, one of our higher milers bought a truck in his personal name for $36,000 cash, including OEM warranty to 300,000. He collected 50 cents a kilometre, the Feds publish a prescribed mileage rate every year and as long as you receive that rate or less the payment to you is not taxable. He drove the vehicle for 300,000 K of claimable Ks, put on 60,000 personal, so $150,000. He declared no Capital Cost Allowance or expenses so the mileage he received was not taxable, the expenses weren't deductible and the personal use Ks were not taxable. Cost to operate vehicle over 3 years, including full purchase price, $110,000. Tax free gain $40,000. If he had declared expenses, lease or interest costs if he had financed etc the mileage payments he received would have become taxable in his hands so half of what he received over and above his actual costs, including writing the truck to zero over three years, would have been taxed away. The mileage money we paid him was completely deductible to us.

This is just one very simple example but it changes dramatically if he only drove 25,000 Klms a year. Simple form is, as long as you collect prescribed rate or less and total annual operating costs, including actual depreciation, are less than you are collecting in mileage payments you are best not to claim expenses personally. However, depending on whether it is your own company or the company that you work for that is paying you mileage, and whether your company owns the vehicle or you own it personally will really change how to set the whole transaction up. Like the others have said, talk to your accountant and get him to run the actual scenarios to know for sure.

[stubby99ca]

Originally Posted by Blastoff

The only person I would ask is your Accountant they would have the real numbers

This is the best advice, individual situations make a difference. I thought about having my company buy a truck for me, accountant ran the #'s and it was a no doubter to use personal truck and have company pay me mileage for the use when on company business.

[7mmremmag]

I am an oilfield consultant. Completions side.
My accountant advised me to buy my truck through my company.
I claim 5% of the mileage as personal and have never been audited.
Ive done it for 7-8 years and 3 trucks and zero issues.

I dont know where your driving or the conditions, but I tried half tons, Tundras to be exact. I went to a 1 ton Ford.
Half tons ride great, but those terrible muddy lease roads are hard on half tons.

[Big Grey Wolf]

My take on lease. You bring your truck to dealer, he lends you his truck for 4 years with limited km. Then 4 years later he has two trucks and you are standing on sidewalk without any truck. Buy truck write it off at 30% per year.

[MountainTi]

Originally Posted by Dean2

One example, one of our higher milers bought a truck in his personal name for $36,000 cash, including OEM warranty to 300,000. He collected 50 cents a kilometre, the Feds publish a prescribed mileage rate every year and as long as you receive that rate or less the payment to you is not taxable. He drove the vehicle for 300,000 K of claimable Ks, put on 60,000 personal, so $150,000. He declared no Capital Cost Allowance or expenses so the mileage he received was not taxable, the expenses weren't deductible and the personal use Ks were not taxable. Cost to operate vehicle over 3 years, including full purchase price, $110,000. Tax free gain $40,000. If he had declared expenses, lease or interest costs if he had financed etc the mileage payments he received would have become taxable in his hands so half of what he received over and above his actual costs, including writing the truck to zero over three years, would have been taxed away. The mileage money we paid him was completely deductible to us.

.

This method works great when you end up on jobs getting fuel supplied.

[MoFugger21]

Originally Posted by Keeleclimber

I'm a consultant in the oilfield, and I wondering if I would be better off renting or leasing a truck to work with rather then driving my personal truck.
My personal truck is a 1ton.
I'd prefer to drive a 1/2ton for work.
Does anyone have any insight to the pros/cons for owing vs renting or leasing a truck for work?
My understanding is that renting a truck is 100% right off.
Thanks

Given you're in the oilfield I'm going to assume you had to incorporate at one point or another.

Assuming you operate under a corporation, the tax side of it:
- Renting/leasing a truck is 100% expense in the year paid (less any GST)
- Purchasing a truck, you have depreciation as your tax expense (30% of the cost of the vehicle on a declining balance method)
- If you had to finance the truck in order to purchase it, you will also be able to expense the interest paid during the year
- If you do purchase a truck through the corporation, just be sure to: 1) keep a personal vehicle, and 2) limit any personal travel with the 'work truck' as any personal travel is considered to be a taxable benefit and a 'stand-by charge' would need to be calculated each year based on the cost of the vehicle and amount of personal KMs. So avoid the stand-by charge at all costs. Keeping the personal vehicle allows you make the argument to CRA (if needed) that you have another vehicle which you drive for personal use and don't use the corporate vehicle personally at all. If you don't have a personal vehicle, that argument is going to be impossible.

- You could also use your personal truck and charge the corporation a per KM allowance based on the number of KM's traveled in the personal vehicle for business purposes (In 2020- $0.59/km for the first 5000km & $0.53 for the remaining KMs). The amount paid by the corporation is an expense in the year paid, and because the allowance paid was per KM and considered reasonable, the amount is tax free for you personally. It's basically a reimbursement for the gas, repairs, insurance, etc and these amounts cannot be paid/expensed through the corporation. You also need to be considered an 'employee' of the corporation in order to be paid this allowance, so a T4 for wages would need to be filed at the end of the year.

Another big aspect to keep in mind, which has nothing to do with tax, is cash flow. What is your current cash flow situation? Do you require a big deposit up front and do you have that cash? Financing most of the purchase will require minimal cash flow, will likely cost you more in the long run due to interest charges, but may be more cost effective right now. Leasing, depending on the lease/KMs/years/etc, may be similar to financing but doesn't require an upfront deposit and also provides stable payments to allow for planning.

You also need to keep in mind how many KMs the lease is for and how many KMs you typically drive in a year. This could be costly if you run out of KMs after year 2 of a 3-year lease.

As had been said, if you want/require a more personal touch on planning, speak with your accountant. They should be able to help you.

[Dean2]

Well done Mofugger21. One key consideration no one, including me mentioned so far, is the limit on the purchase price of the vehicle being leased or bought and depreciated if you don't meet all the criteria. If you buy a vehicle Make sure it meets the vehicle definitions or it will be classed as a passenger vehicle and reduce the write-of limit to $30,000 of the purchase price.


https://www.canada.ca/en/revenue-age...ons-chart.html

[oilngas]

Dean and mo nailed it. My personal experience from a few year ago is; buy it, keep good records, don't finagle with the rules from Rev. Canada. Your accountant will be your best source of info. not "da boys".

I did have a third party Consultant hired by self thru a Co. for Oilfield Completions. He did get caught up in a Rev. Canada Audit, long story short, he was not paying taxes, divorce, not deducting person miles etc. in the end he very , very much regretted attracting an audit, so again follow the rules and all will be well.

It did cause some grief for the Client I was doing all this for, and therefore me, after that meeting I changed the Contracts, etc. and revised my hiring practices, paid a lot more attention to the issue. I had just assume no one would be silly enuff to attract an audit, that was big mistake i made.

[EZM]

YUP - agreed - run the scenarios and see what works best.

If it's your own company a lease is advantageous as it keeps your overhead costs lowest and you will recover the billable mileage against the expense costs of the lease, fuel, maint., etc... your residual (and end of term buy out) is the only depreciation tax credit you will get (if you choose that route).

Renting is usually never a good option. It a straight up expense and you gain nothing from depreciating an asset on taxes (as you don't own it) and the mileage you charge can be taxable - but the expense line is separate over the revenue line you get by billing that unit out to your client. You gain nothing in the end and pay more both ways (unless it's a short term thing then maybe a rental makes sense).

Buying outright ties up cash. You do get 100% of the depreciation tax credit but you can't double dip expense, payment and depreciation - so a lease makes more sense (as long as the interest rate is reasonable).