Buying vs. Leasing Guide for Dummies

[Blinky]

Originally Posted by RabidRat

So I had a question for those of you who've had some experience in writing off lease payments. If I've purchased my vehicle outright, is there a provision for me to write off *depreciation* of the vehicle as a business expense? How about the interest on financing - could this be written off as a business expense?

Assuming it's legitimately for business, yes, you can write off a portion of the depreciation. It's called a capital cost allowance. Keep in mind it has to be for business. Commuting to work doesn't count!

[hchang]

Originally Posted by RabidRat

I do appreciate the effort hchang. And even if you're off on a couple things I think it's a great topic to bring up.

So I had a question for those of you who've had some experience in writing off lease payments. If I've purchased my vehicle outright, is there a provision for me to write off *depreciation* of the vehicle as a business expense? How about the interest on financing - could this be written off as a business expense?

Does the CRA care what kind of vehicle you're claiming for business use (within reason) as long as you have a good explanation, or are they very strict about it?

Thanks dude.

Guess I am off on a few things... but oh well. Just tried to help.

As for your depreciation I don't think you can write that off as a business expense. But however, I think, but don't quote me, that the whole car can be written off as a business expense for the year, or maybe over a period of time as a business expense (better to consult an accountant) and also insurance if it is insured for work.

Interest on financing/The car in general should be able to be written off.

As for the type of cars, the CRA wouldn't really care unless they suspect you of cheating them, which then will result in them looking more closer to you. If its remotely close to your line of work you should be fine, as long as its not you writing off a smart car for a construction company or something.

[Blinky]

Originally Posted by hchang

Thanks dude.

Guess I am off on a few things... but oh well. Just tried to help.

While the effort is admirable, please keep this in mind: it's best to avoid writing a post that purports to be authoritative and absolute when you're not sure about what you're writing about.

[freakshow]

There is so much misinformation in this thread, I don't know where to start. We should honestly delete it or send it to FC so that people will not be misled.

The bottom line is that anyone who says financing is always wrong, or leasing is always wrong if you're not a business is WRONG. Depending on the car, price and purpose, both financing and leasing can be very viable, financially sound options.

[Meowjin]

I wish I bought a car 2 years ago when I got in my accident. Leasing was the biggest mistake i've ever made. Not because I couldn't afford it, but insurance rules with honda canada, especially after I took a big paycut at work, is what's screwing me.

[maxx]

downside to financing is, a bad accident may happen to your vehicle and if ICBC order to repair your vehicle instead of writing it off, you're stuck with a vehicle with a huge dec on it.

my co-workers' gf rear ended a car and her 08 GTI has around 23k damage. ICBC chose not to write it off, so now she is financing a rebuild car, pretty much.

great topic to discuss though, OP!

[RabidRat]

Originally Posted by maxx

downside to financing is, a bad accident may happen to your vehicle and if ICBC order to repair your vehicle instead of writing it off, you're stuck with a vehicle with a huge dec on it.

my co-workers' gf rear ended a car and her 08 GTI has around 23k damage. ICBC chose not to write it off, so now she is financing a rebuild car, pretty much.

great topic to discuss though, OP!

I think if I ever bought a car brand new, I'd get the new vehicle replacement coverage from ICBC, or at the VERY least, limited deprec coverage (one perk is that they pay you back exactly what you paid for your car NEW, with no hit on depreciation!). It's only a few bills more a year, and the fact that you aren't completely, completely fucked when the above situation happens is some real peace of mind.

http://www.icbc.com/autoplan/optiona...ew-replacement
http://www.icbc.com/autoplan/optiona...d-depreciation

[Ferra]

Leasing doesn't necessary mean you are paying more, and from an accounting or tax stand point, neither one is definitely better than the other. (it depends)

Lease = You typically pays higher interest rate (1-2%), and an additional of $200-$500 in lease fees, so that you get the option to choose whether or not to keep the car at the end of the terms.

Leasing car is almost like buying a stock put option:
- Higher lease rate and fees = the cost of the option
- Car residual value = the possible value/benefit of the option

[GabAlmighty]

Leasing is for ruhtards that don't know how to best maximize their money.

[Tegra_Devil]

Originally Posted by Pt20

i failed you cause she had a top on...

[TOS'd]

Buying vs. Leasing Guide for Dummies...more like written by a dummy, amirite

[cctw]

ok..from a personal consumer point of view..leasing is almost always more expensive than financing..
for one...even if..assuming lease and finance rates are the same...you are paying more money for leasing because with the lower payments, you pay off less of the principal of the car..and interest accumulates based on the amount of the principal left outstanding..
therefore..if you plan to lease a car..you should never buy it out cos that'd be equivalent to fianancing except with higher interest rates. Also to be able to pay off the final lump sum amount to buy out, you'd have to save up money every month for the ex. 4 year lease which would be the same as financing anyways.

Now for those of you that say you wanna see 4 years later what the car will be worth, it'll almost always be true that the final lump sum payment is greater than what the car is worth. That's because you paid off alot of interest with your monthly lease payments and thus a large portion of the principal is left to be paid off. Another point is that car retailers take depreciation into account which is reflected in the high interest rates of leasing. They make enough profit off the interest to ensure a profit when they resell the car after the lease is up.

Now for businesses, both financing and leasing can be beneficial depending on a number of factors. The benefits of financing is you can write-off the depreciation on the car as well as the interest payments on debt (note not the principal,..you'd have to separate each monthly payment into its interest and principal portions to determine the amount you save). On the other hand the main benefits of leasing is that you dont own the asset on your books and thus not the liabilities as well. You can write off the whole monthly payment as an expense. When deciding between financing and leasing you should take into account the lost CCA and interest deductible amounts and choose the one that saves you the most money.

And one more thing, leases are classified in two ways. Expensing the payments are only possible if the lease is classified as an operating lease. If the lease is classified as a capital lease, the asset and liability of purchasing the vehicle still remains on your books and you depreciate it as if it was financed. (this was kinda put in place cos companies in the past took advantage of the benefit of not having the liability on the books even though in essence the lease was like a finance and abused the policies)..

the criteria for determing whether its a operating or capital lease is below:
* the lease term is greater than 75% of the property’s estimated economic life;
* the lease contains an option to purchase the property for less than fair market value;
* ownership of the property is transferred to the lessee at the end of the lease term;
* or the present value of the lease payments exceeds 90% of the fair market value of the property.

you meet any of the one criteria and you have to classify as capital lease (so basically treating it the financing way)..

of course it's judgmental whether you treat the lease as operating or capital for vehicles..depending on the lease terms and monthly payments and such since businesses probably get diff rates and have lease contracts that differ greatly from what personal consumers get

[xpl0sive]

you can't call a financed car an asset... Cars should never be viewed as invesments, they are a luxury and are there for enjoyment, not a savings account. Leasing might make sense to someone who doesn't really care about the end result, and just wants to drive a new car all the time. here's my personal example.
I only usually keep my cars for about 2 years. My last car, I bought it used for $22k. Financed the whole thing at a really low rate. Two years later, I got into an accident and the car was written off. Market value of the car at that point was about $15k. I had $14,500 left on my loan. So, I have been "renting" the car for those two years. So I paid $7k to drive the car I liked for two years.
Some people say that financing is bad. "If you can't pay cash for it, then you can't afford to have it". But that doesnt really make sense to someone like me. Why would I pay $22k cash up front, then drive the car for two years, sell it for $15k and be out $7k. I would rather pay the $500/month, which you don't really notice if you work full-time, and then invest the $22k where it will actually earn me money instead of sitting there in my garage depreciating everyday.
Leasing works in a similar way, but there are longer time periods and more money involved. Leasing should only be done on new cars. I've seen people lease used cars, because they got a lower monthly payment... they ended up paying $50k for a $35k car. I also don't understand the people that put $20k down on a $80k car lease and then return the car at the end of the lease. Why not finance it with the same $20k down and actually be able to sell the car and get some of that money back?
anyways, just my personal opinions here, not trying to teach anyone how to live

[cctw]

^a financed car is an asset in business terms if it is used as part of the operations of your business..because if finance you have title to the car, whereas for a lease the title of the car remains with the lessor.

[xpl0sive]

oh ok well I'm not talking about buying a car for business, and I'm pretty sure most people on RS aren't buying cars for business purposes. But for business use in canada, either lease or finance works. You can only write off a portion of either one... unlike in the US, if your vehicle is over 5000lbs, the entire lease can be written off, not sure if thats still true, but while i live there, that was the case. That "loophole" contributed to the production of the HUGE trucks and SUVs in the US because people were leasing them for their businesses and writing them off

[i-VTEC]

Would type of car make be a factor when choosing buy or lease?

Toyota, Honda, they are quite reliable and parts/maintenance aren't that expensive

While BMW, Mercedes, Audi are the opposite since they are quite expensive when dealing with parts/maintenance.

[Great68]

Originally Posted by hchang

Thanks dude.



As for your depreciation I don't think you can write that off as a business expense. But however, I think, but don't quote me, that the whole car can be written off as a business expense for the year, or maybe over a period of time as a business expense (better to consult an accountant) and also insurance if it is insured for work.

Wrong on both counts.

You absolutely can claim annual depreciation of a vehicle for business as a (Blinky previously mentioned) capital cost allowance. I just did this for the first time on my last income tax. Unfortunately to me, my amount of usage didn't exceed the allowance my company allocated for me as "Vehicle allowance" and I didn't get anything back.

Personal use of property

You have to have a signed T2200 form from your employer. If you get mileage payments from your employer, you would probably not get this form.

[bing]

Originally Posted by d87c

Would type of car make be a factor when choosing buy or lease?

Toyota, Honda, they are quite reliable and parts/maintenance aren't that expensive

While BMW, Mercedes, Audi are the opposite since they are quite expensive when dealing with parts/maintenance.

I think that the type of car only becomes an important factor when it has a direct bearing on the number of jerry cans that will fit in the trunk.

[Harvey Specter]

If you're looking to get a loan or say re-financing your home in the future than stay away from leasing a car. The bank wants to see you own hard assets, if you have a lease against your name the bank will take that into account were as if you're financing the car the bank will see that as an asset.

Also, a lot of manufactures are offering financing with balloon payments and a lower interest rate than leasing. So you put a little down which doesn't go to waste like it does when you lease and you pay out the same amount for say 4 years that you would with a lease with one balloon payment at the end. It's your car, you have an asset and most people don't pay the full term out because they'll flip their car way before the balloon payment is due.

What I've realized is more expensive the car is, the bigger money pit it is. Sort of like having a super hot girlfriend, she'll leave you broke at the end but it was fun while it lasted.