The decision to lease or buy a vehicle for your business is often not a simple one. Buying gives you more flexibility and typically a lower long-term cost of ownership. Leasing can allow for a lower monthly cost, better tax deductions and the ability to swap your vehicle every four to five years.
Three other factors to consider:
Monthly cash flow
If maintaining a strong bank balance is a concern for you, leasing may be the preferred option. Leasing will result in lower monthly payment compared to buying because the vehicle returns to the lessor with residual value at the end of the lease term.
If you expect to drive the vehicle a lot, purchasing may be the preferred option. Leased vehicles generally cap annual mileage at 24,000 KM. If you exceed this, you’ll most likely pay more than you originally budgeted. When you own the vehicle, you can drive at will without thinking twice about it.
Because CRA lease payment deductions are capped at $800 a month, expensive or luxury vehicles typically provide better tax deductions when leased. Owned vehicles are capped at a cost of $30,000 for tax purposes but interest on vehicle loans and tax depreciation (ie. capital cost allowance of 30% per year) would be deductible (a nice bonus). New for 2019, the $30,000 cap is temporarily increased to $55,000 for “qualifying vehicles” which include fully electric or plug-in hybrid vehicles.
Overall, purchasing will provide your business with more flexibility and typically lower cost of ownership long-term. However, leasing can allow for a lower monthly cost, superior tax deductions, and the ability to swap your vehicle every 4-5 years.
For an in-depth analysis and a breakdown of tax implications for both options, contact your DMCL advisor today.