# Purchasing a new vehicle when self employed - tax questions



## bds (Aug 13, 2013)

My wife is currently looking to purchase a new car (Hyundai Accent or Elantra). She's in a position to buy it outright but is trying to find out if lease or finance makes more sense from a tax standpoint and has heard conflicting things from various people about it. I have no idea about this because I have always driven old, used cars.

She should make ~50-60k this year, she drives about 35k/year.

Has anyone looked into this before? Any info would be great!


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## OptsyEagle (Nov 29, 2009)

If she leases, she can write off the entire lease payment (up to some max.) and if she buys she can write it off under a depreciation schedule. I believe the depreciation schedule is 30% of the purchase price (up to a max.) on a declining balance. The only negative with buying is in the year of purchase they only let you write off half of the yearly amount, since they do not know what month you bought it in.

So for example if the car is $20,000. 30% of it is $6000 and in the first year you divide that in half, which would give her a $3,000 right off. Next year the undepreciated value of the car is now $17,000 ($20,000 minus $3000 written off). She can then write off 30% of $17,000 or $5,100 and her depreciated value after that for the next year is $11,900. So you can see where this is going. That is how it works, so she can decide for herself. 

Many times people will say leasing is better but I think that came from the car dealerships who make more money selling cars to people who lease (since most Canadians cannot figure out how much they are actually paying in total when they lease, so it is easier to get customers to pay more) and the rest of the population who know nothing about taxes and just keep saying leasing is better.

The real answer to me, is buying allows you to negotiate better for the car and can save you some interest (although these days the interest is not usually a lot) and most importantly, only allows the car dealership to rape you once, when you buy it, and not twice when you buy it and then take the car back after the lease is up. Except for the 1st year, the tax write off amount from buying are probably the same or better then leasing and depending on what month you buy, even the 1st year can be better, since the leasing write off amount will depend on how many monthly lease payments are made that year.


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## sags (May 15, 2010)

If she drives 35K a year, she would be better to purchase the car. 

The fee for extra kilometers would be paid at the end of the lease and be very expensive, as it reduces the "residual" value of the vehicle.

As she is self employed, she probably would be better to finance the vehicle and write off the business use portion.


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## carverman (Nov 8, 2010)

sags said:


> *If she drives 35K a year, she would be better to purchase the car. *
> 
> The fee for extra kilometers would be paid at the end of the lease and be very expensive, as it reduces the "residual" value of the vehicle.
> 
> As she is self employed, she probably would be better to finance the vehicle and write off the business use portion.


Most leases only allow so many kilometers per year and then the dealership dings you bigtime for any excess when you turn the car in at the end of the lease period.
The depreciation of the vehicle is built into the lease price. 



> You are responsible for maintaining the automobile. A maintenance schedule is outlined in the owner's manual.





> Allowable Kilometers
> The yearly kilometer allowance with HFS is 24,000. At lease inception, you can purchase additional kilometers.


Here is the important "gotcha!" Higher kilometers = more wear and tear. When you turn in the car at the end of the lease, the car is checked over thoroughly 
by the dealership before you can sign off on the lease. Any damage, scratches, rust, as well as tires, brakes and other wear and tear items are checked and
could be replaced by the dealer, if necessary..that could lead to a sizeable final payment that you may not be expecting.

With only 35,000 km the first year, there probably won't be much wear. In the second year, at 70,000km, some tire wear will be apparent. At the
end of the third year (105,000) tires and brakes and other wear and tear items (serpentine belts, wipers etc) may have to be changed.
That goes under maintenance of the vehicle.

So in essence, the lease is basically for the use of the car for 36 months. You have to maintain the car so that the dealership can sell it as a post lease
vehicle for the maximum selling price after depreciation is discounted...which you have paid for + the dealers profit and the applicable taxes.
Some leases allow you to buy the vehicle for some predetermined residual price.



> Excessive Wear and Tear
> If you are returning your vehicle at lease end, your vehicle will be inspected by an independent company to determine if there is any chargeable damage. Chargeable damage can include: dents, paint damage, missing equipment cracked or chipped glass, mechanical damage, holes, tears or burns to upholstery. You are responsible for either repairing identified damage to acceptable standards prior to returning the vehicle or paying the amount indicated on the inspection report plus applicable taxes.


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## fraser (May 15, 2010)

As I recall you do not get a 30 percent depreciation in year one, only 15.

She will also have to consider personal use. As I recall, leased vehicles have a minimum personal use charge (standby charge) based on the cost of the vehicle. You tax write off will be reduced by the percentage of personal use.

Where it became attractive for us was when the vehicle was going to be replaced. We would have all the work done/tires replaced, then transfer it over to my spouse at the undepreciated capital cost which was invariably a low dollar amount. So she got a car in tip top condition for a very good price.


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## Eclectic12 (Oct 20, 2010)

The other thing to consider is when I looked at this a long time ago, I seem to recall that a fair number of business people leased as there were more maintenance expenses allowed. 

Here is a link to consider ....
http://madanca.com/blog/is-it-better-to-lease-or-buy-a-car-for-a-business-in-canada/


Cheers


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## Homerhomer (Oct 18, 2010)

The main factor is if she wants to keep the car for long time (buy), ei 10 years or until you run it to the ground, or get a new one in 3 or 4 years (lease). 

Now there is also issue of sales tax, basically if the vehicle is used more than 50% for business, and if she is registered for gst, she can claim the whole amount of gst on the purchase of the car, if she is using it for business 50% or less she can't claim any. If she can't claim gst, and if getting new car in 4 years, the purchase definetely won't make sence.
http://www.cra-arc.gc.ca/tx/bsnss/tpcs/gst-tps/bspsbch/itc-cti/cptl/vhcl-eng.html


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## CPA Candidate (Dec 15, 2013)

Something to keep in mind, the maximum depreciable cost of a vehicle is $30,000 (maximum lease expense is capped as well). If the cost is over 30k it goes into a special class 10.1 with specific rules (which I cannot fully recall at the moment).


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## Homerhomer (Oct 18, 2010)

CPA Candidate said:


> Something to keep in mind, the maximum depreciable cost of a vehicle is $30,000 (maximum lease expense is capped as well). If the cost is over 30k it goes into a special class 10.1 with specific rules (which I cannot fully recall at the moment).


that shouldn't be an issue for OP unless their hyundai comes with lot's of bling like brakes coated with swarovsky crystals ;-)


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