I’m starting to grow my business and need a more reliable vehicle. What should I do? Do I buy the vehicle personally or corporately? Do I lease or buy?
Lease or Buy?
One of the most common questions I am asked is whether to lease or buy a vehicle.
The answer is never set in stone. It all depends on the company’s needs, preferences and capabilities.
Everyone wants to save on taxes, but that should not be the only reason to decide whether or not a company leases or purchases a vehicle.
The tax consequences are quite different depending on the option you choose:
If you purchase a vehicle, then you can only claim a percentage of the vehicle’s cost each year. In the first year, this percentage is cut in half as a result of Canada Revenue Agency’s half –year rule. Furthermore, the cost of the vehicle is usually capped at $30,000, which means that if your car cost $60,000, you are only allowed to claim $30,000 of the cost over the life of the vehicle.
If you lease a vehicle, you can deduct the lease payments against your income for the year. The lease payment, however, is capped at $800 per month.
If the cost of the vehicle is less than $30,000, leasing may result in a higher tax deduction in the first couple of years. However, the overall tax impact will usually be pretty close under each option.
- What is the company’s current cash flow situation?
- What can the company afford to pay on a monthly basis?
- Does the company have any debt?
- How many kilometers do you expect to drive in a year?
- Is the vehicle going to be driven 100% for business purposes or will there be a personal component?
- Are you planning to keep the vehicle indefinitely or do you want to replace it every couple of years?
Have more questions? Contact us.