Every autumn, automobile dealerships typically discount the present year’s new vehicles to make room for next year’s vehicles coming in fresh off the assembly line. One of the most common questions the staff at Canwest Accounting hear is, “Should I buy or lease a vehicle? What makes the most sense for my taxes?”
“When asked that, I always ask what their long-term plans are for the car,” says Sharlane Bailey, owner of Canwest Accounting, which has offices in Victoria and on the West Shore (Langford). “How you answer that first question will guide which road we take you on.”
She adds that each situation can be different, so it’s a good idea to seek the advice of an expert, like the bookkeeping and accounting experts at Canwest Accounting, who do their best to help in these circumstances.
For the person who wants to keep the vehicle only three or four years, Bailey says you are usually best leasing. However, when leasing you need to look at the mileage you put on a vehicle to ensure it fits within the terms of a lease.
“A lot of leases have kilometre restrictions, which may fall below what you typically drive,” said Bailey. “If you drive a lot, it’s worth seeing whether you can get a lease that allows for increased kilometres.”
On the other hand, if you are planning to keep the vehicle for a long time, it is generally better to buy the vehicle. For businesses, over the long term it tends not to make a difference whether you buy or lease when it comes to tax deductions. If you lease the vehicle, you can write off the payments. If you buy the vehicle, you can write off the interest paid on a loan, as well as depreciate the vehicle on your taxes. As with any capital expense, you can only deduct half the depreciation value during the first year.
Business owners should keep in mind if an employee drives a company vehicle for personal use, this could be a taxable benefit for them.
Advantages to buying, as well as leasing
If an individual purchases a vehicle for both business and leisure driving, then the sole proprietor can write off a portion of the vehicle on their taxes. That portion is based on the percentage you use the vehicle for business versus leisure. To establish this, keep a driving journal for the first year you own the car, and note down when you are using the vehicle for business, and how far each of these trips are. If, for example, it turns out you use the vehicle for business 50 per cent of the time, then you can write off half the expenses, including gas, maintenance, and even car washes, plus half the interest payments and depreciation value. Other vehicle-related business expenses that can be a tax deduction include parking. Make sure you keep all of those receipts!
Are you considering whether you should buy or lease a vehicle? The team at Canwest Accounting can help.
The suggestions and advice provided by Canwest Accounting should not be relied upon in place of professional advice. You are responsible for checking the accuracy of relevant facts and opinions provided.