Can Business Credit Cards be Used For Personal Use in Canada?
Kevin Shahnazari
•7 min read
Credit cards offer an efficient way to perform financial transactions in Canada. Majorly credit cards can be classified into two types, namely business credit cards and personal credit cards. As the name suggests, business credit cards aim to facilitate businesses, while personal credit cards are specially designed for users' personal needs.
Both personal and business credit cards inherently work in the same manner. Both come with a credit limit up to which users can spend in a month, after which they have to pay back the debt. They can pay the minimum due amount and delay the rest of the payment at the cost of an additional interest rate. Though the main operations of both cards are the same, they differ in a lot of ways, such as the interest rates, the credit limits, the responsibility of liability, the rewards, and benefits.
Having their pros and cons, both personal and business credit cards are designed in specific ways to help users. Have you ever considered what could happen if you use your business credit card to conduct your personal transactions? It seems harmless since it is your credit card, and you can do whatever you want, but in reality, it doesn't work like this. The seemingly harmless act can have repercussions. Are you curious to discover what can happen if you conduct personal expenses on a business credit card? You will find all your answers here, so stay tuned till the end.
Why do users use business credit cards for personal use?
Let's start by checking out the reason behind using the business credit card for personal use. There can be multiple reasons behind this act, but here is a list of some of the most popular reasons:
- High credit limit: Usually, the credit limit of business credit cards is higher than that of personal credit cards. This is why the users make personal transactions from business credit cards to avail of the high credit card instead of negatively affecting their credit utilization of personal credit cards.
- Manage personal cash flow: Sometimes, when users are short of personal funds, they prefer to put the expenses on a business credit card to manage the expenses.
- Benefits and rewards: Some users use business credit cards to conduct personal transactions to make sure that they can access the benefits and rewards of business credit cards. This is especially true when business credit cards' rewards and benefit plan is quite lucrative, and users want to make the most out of it. They want to make sure that their credit card usage is more to increase their redeemable points, free miles, or other benefits. This is especially true for sole proprietor and partnership accounts.
- Honest mistake: Sometimes, users do not use business credit cards deliberately for their personal transactions. It can be an honest mistake to confuse a business credit card with a personal credit card and pay with the wrong card instead. It can happen to anyone because when you have more than one credit card, you can change the personal transaction to a business credit card when in a hurry.
Can you use business credit cards for personal use?
The straightforward answer to this question is NO. Ideally, you must use something other than your business credit card for your personal use. In some cases, you are legally bound not to do so. Even if it is not entirely illegal in some cases, it can still create trouble for you. It is advisable to use both cards for their intended purposes and not intertwine the expenses of one account with another. The basic purpose of getting a business credit card in the first place is to separate business expenses from personal expenses, so there is no point in using one card to conduct transactions that are not meant to be.
You must be wondering why it is a big deal if you use a business credit card for personal transactions. Well, it is because of several issues that arise. No matter for which purpose you choose to conduct personal expenses from the business credit card, you will come across the following issues:
- Taxation difficulty: When you use the business credit card for personal use, the statement shows transactions for both purposes. This makes it impossible to present the statement as it is for business taxation purposes. The Canada Revenue Agency (CRA) requires that you maintain an accurate accounting record of all business expenses that are related to taxation. But when you mix the business expenses with personal expenses, it becomes difficult to determine which expenses were for which purpose. It takes time to accurately separate the expenses and can lead to inaccurate information about tax-deductible expenses. Therefore, it can lead to difficulty in reporting and calculating business tax.
- Audit difficulty: Mixing the business expenses with your personal expenses can make it difficult to present accurate data when CRA (Canada Revenue Agency) conducts a business audit. Presenting inaccurate records while auditing can be taken as a misrepresentation of assets, which can lead to serious actions from CRA.
- Inaccurate Record keeping: Every business needs an accurate record for bookkeeping and accounting purposes. You need to report all the business expenses to create an income statement, profit and loss statement, and other reports to monitor your business position and manage business finances. It becomes quite challenging to accurately report business expenses when they are intermingled with your personal expenses by using the business credit card to charge for personal transactions.
- Legal binding: You need to read the terms and conditions of your business credit card carefully, as some credit card issuers do not legally allow you to charge any personal expenses to your business credit card. Doing so implies that you are legally breaking the agreement and not fulfilling the promise you made with the credit card issuer that you made while getting the business credit card. In such a case, the credit card issuer will hold you responsible for breaking the contract. You can face legal action by the credit card issuer, which can be in the form of a financial penalty, suspension of credit card for some time, or the harsh punishment of account closure on account of breaking the contract.
- Necessary Reimbursement: To ensure clarity between personal and business expenses, you might be required to reimburse the personal expenses that you have reported on your business credit card. The reimbursement is quite a time-consuming and complicated process. It may require your time and energy, along with financial resources spent on proper documentation. You need to ensure that you maintain adequate documentation proof of reimbursement to show it to concerned authorities. Failing to do so can lead to compliance issues and legal implications.
- Affect business credit score: If you charge your high personal expenses to your business credit card, then you might end up having a high credit utilization. In addition, there is a possibility you won't be able to repay the amount in full, resulting in the applicability of the interest rate, raising your overall debt. High credit utilization and high outstanding debt can negatively affect your business credit score. A low business credit score can make it difficult for your business to get financial favors in terms of loans and credit cards in the future. This will restrict your future financial freedom, which can negatively affect your business.
Confusion in transactions
Some transactions are quite confusing, and it can be difficult for the credit bureau to assess whether they are conducted for business purposes or personal purposes.
For example, a receipt of dinner for two can be either for a dinner with a business client or a romantic dinner date. But there is no way the credit bureau can identify who was at the dinner with the credit card user.
The credit card user can get the benefit of the doubt on such transactions, but it is still best not to charge any personal expenses on the business credit card. Rather, you should use two separate cards for both personal and business expenses, just the way it is meant to be.