Company Cars: To Lease or To Buy?

Leasing or buying can be difficult. Here are some helpful facts to help you decide which is best for you.

May 12, 2022

To buy or lease a car? Buying or leasing cars can be a significant drain on company resources. However, factoring in a few key variables, such as available cash flow and tax implications, can help you decide which is right for your business. Every other company in Mississauga for buying or leasing a vehicle is faced with this dilemma. It's not always easy to decide whether to lease or buy a car for your company. You'll need to take a look at a few things before you decide, should you buy or lease cars for your business.

We know this is not always an easy decision as there’s a lot to consider so don’t panic! Yogi & Associates are here to help you guide which step to take. If you own a business in Mississauga, we understand that having suitable vehicles for your employees is critical to the success of your company. We've put together this infographic on the company’s cars - buy or lease?

How to Lease a Car?

When you lease a car, you only pay for the parts of the vehicle you utilize. You pay the company for the privilege of driving the vehicle for a set period, usually two to four years. The vehicle is returned at the end of the lease. You may be able to purchase the car at its present market value at the end of the lease in some situations. The monthly payments are usually lower if you buy the vehicle. Most leasing agreements define the maximum number of miles that can be driven.

 The annual mileage limit is generally between 10,000 and 12,000 miles. If you go beyond this limit, you will be charged an additional cost for each extra mile. According to the CRA, You can also deduct up to $800 plus HST each month from your lease payments. The percentage of time the vehicle is utilized for professional reasons is limited. The CRA considers any car costing $30,000 or more a luxury vehicle, which may restrict the number of lease payments you can deduct for business purposes.

How to Buy a Car?

Most small company owners finance their vehicles rather than purchasing them all together. Both principal and interest are included in loan installments. The principal portion of your loan sum will be reduced as you make monthly payments. Once you've paid off your debt, you'll have an asset. You have the option to keep, sell, or pass on that asset. If you financed the vehicle, you could deduct the interest portion of your payments up to $300 per month. According to the CRA, you can also take a Capital Cost Allowance (CCA) each year; in the first year, you can deduct 15% of the cost, and in the second and third years, you can deduct 30% of the decreasing balance of the cost.

FOR YOU

Register your business in Canada today

GET STARTED

Benefits of Buying or Leasing a Company Car:

FOR YOU

Register your business in Canada today

GET STARTED

Company Cars for Business or Personal Use:

Company Cars for Business Purposes:

When a vehicle is leased through a corporation, the business can deduct the business-use share of the lease payments and other car running costs from its taxes.

Company Cars for Personal Use:

When an employer provides a vehicle to an employee for personal use, the employee has received a taxable benefit. According to the Canada Revenue Agency, Even driving a business car to and from work is deemed personal use!

Two Elements of Tax Benefits:

  1. Standby Charge Benefit
  2. Operating Benefit

1. Standby Charge Benefit

This benefit means that employees receive help by having a vehicle given to them during the year.

The standby charge is determined as follows: 

  • 2% every month of the vehicle's purchase price
  • 2/3% of the leasing costs are calculated based on the number of days the employee has access to the vehicle during the year.

2. Operating Benefit:

Suppose an employee has been given the vehicle for personal use. The operational cost is added to his taxable income for the year, minus any reimbursements to the company for car use. The operating cost benefit is determined by multiplying the number of personal kilometers driven in a year by the per kilometer rate ($0.27/km in 2021).

What Are The Tax Deductions For Buying Or Leasing?

If the company decides to lease a vehicle, it can deduct the monthly leasing payments from its corporate tax return to $800 per month + GST/HST.

The first $30,000 of the car's cost can be deducted from the company tax return under the capital cost allowance program if the vehicle is purchased. Furthermore, the company can remove the expenses of running your vehicle, such as:

  • Costs of licensing and reiteration
  • Oil and fuel
  • Insurance
  • Costs of repairs and upkeep

If you want to learn about GST/HST, you can look into the article on our website by clicking When and Why do I have to Acquire GST/HST number?

Wrapping it up!

Deciding between buying and leasing a company car can be stressful, especially if you're dealing with a lack of information or too much information. But don't get confused, as Yogi & Associates in Mississauga are here for you! Our financial advisers will guide you to choose the better option for your company before buying. Their knowledge can assist you in determining if buying or leasing is the best option for you and direct you to dealerships where you may obtain a car loan or lease that meets your requirements. So you can contact Yogi & Associates to seek help as we hope that the information and guidance we give will help you confidently buy or lease a vehicle for your company in Mississauga.

Rafia Khalil

Executive Journalist

Recommended for you

Accounting

A Guide to High-Interest Saving Account:

Business

Claiming Your Business Expenses:Essential Guidelines

Business

Company Cars: To Lease or To Buy?

Business

The Top 3 Tax-Deductible Business Expenses in Canada

Business Incorporation

What to do next after Incorporating Your Business?

Payroll

Different Periods Of Payroll Frequency: An Essential Guide

Payroll

What is Payroll And How do I Set Up my Payroll

Business

A Quick Primer to Creating A CRA My Business Account

Business

Understanding the Tax Deadlines In 2022

Cryptocurrency

The Essential Guide to Cryptocurrency: Personal Income

Cryptocurrency

A Legal Guide to Crypto-currency: Business Income

Business

3 types of Master Business License

Business

Here’s How to Register for Master Business License

Business

How to Choose a Business Name in Canada?

Business

How to Start Your Business in Canada?

Business

How to choose a Corporate Fiscal Year-end Date

Business

Incorporating Your Business In Canada: How and Why

Accounting

Listing the Penalties for Filing Late GST/HST:

Accounting

The Legal Guide: GST/HST Return

Business

How to start charging and collecting GST/HST

Business

GST Number: How to Register for GST Number

Accounting

Everything You Need to Know about Input Tax Credits:

Accounting

Step By Step Guide To Payroll Remittances: PD7A Forms

Business

A Legal Guide to Work Permit in Canada:

Accounting

Four Essential Components of Payroll in Canada

Accounting

The Ultimate Payroll Set-up Checklist:

Business

A Complete Guide to Understand the TD1 Forms

Business

Minimum Wage Requirements: A Simple Guide

Business

Everything You Need to Know About Canada Pension Plan

Business

Why Should You Remit the Payroll Deductions

Business

The Ultimate Guide to Employment Insurance

Business

A Step-by-Step Guide to T4 Forms

Business

Employees and Contractors: The Beginners Guide!

Accounting

Everything You Need To Know About ROE

Accounting

2022 Statutory Holiday Schedule of Payroll:

Accounting

Is NFT Taxable In Canada?

Business

Which Business Expenses Are Tax-Deductible In Canada

Business

How to Understand Different Retirement Accounts

Business

5 Simple Ways to Know About CRCB Support Program

Business

The Essential Guide to CRSB Support Program

Business

What Is A Canada Worker Lockdown Benefit Program?

Business

Everything You Need To Know About Work Sharing Program

Accounting

Why is it important to return GST/HST?

Accounting

Exemption for charging GST/HST

Business

When and Why do I have to acquire an HST/GST number

Business

How to Register for HST/GST Number

Business Operation

Effectively run your business at home

Business Operation

What are the tools you can use to grow your business

Business

5 Amazing Benefits Of Soleproprietorship

Business Incorporation

Federal Vs Ontario: Which Incorporation is Best for You

Business Planning

How to write a Recession Proof Business Plan

Accounting

How to get approved for a Business Loan fast and easy