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.
Benefits of Buying or Leasing a Company Car:
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:
- Standby Charge Benefit
- 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
- 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.