# Car for employment, tax deductions



## Stompie79 (Aug 21, 2009)

Hi All,

I'm moving employer and the new one required me to "maintain access" to a car. I haven't owned a car since moving to Canada 5 years ago so I'm having to spend a bit of time organising it.

My question is do any of you have any rules of thumb or recommendation on lease vrs. owning for tax purposes/savings? Looking at the forms it appears that:
If I lease I get to deduct whatever % of the mileage is work related multiplied by the lease payment cost; or
If I buy I get to deduct whatever % of the mileage is work related multiplied by30% of 50% of the capital cost (something called the 50% rule).

All other expenses are the same for either option.

A basic calculation I get from this based on lease/finance payments/cost I have collected and assuming 100% work milage to keep things simple is

Annual lease cost $3915*.3115 = $1220 saving.

Total new cost $20395
Refund $20395*.5*.3*.3115 = $953 which will reduce each year as the cars value depreciates.

So I need to figure out if the extra value of owning the car at the end of the finance period (5yr) is worth the reduction in tax savings. Have I understood this correctly? Is their any glaring errors errors I have made?

Thanks for your thoughts and time,

Paul


----------



## MoneyGal (Apr 24, 2009)

I think you are misunderstanding the 50% rule. In the first year of acquisition, the normal CCA is reduced by 50%. In all subsequent years, the regular rate applies to the declining balance. 

Accordingly, the CCA calculation would be:

In the first year: total capital cost * (50% of normal CCA rate)
In all subsequent years: Undepreciated capital cost * normal CCA rate

So your CCA calculation for year one is $20,395 * (30% * .5) 
or $20,395*(6118.5*.5) = $3059.25

The other things to consider are whether you would need to finance the car and whether you WANT the car at the end of the lease period. If your employer will continue to require you to maintain access to a car, you could continue to lease.


----------



## OhGreatGuru (May 24, 2009)

Stompie79 said:


> Hi All,
> 
> I'm moving employer and the new one required me to "maintain access" to a car. I haven't owned a car since moving to Canada 5 years ago so I'm having to spend a bit of time organising it.
> 
> ...


What does "maintain access" mean? Does your employer reimburse you for the use of the vehicle (by mileage allowance for example) If so I don't think you can claim any ownwership cost as a tax deduction.


----------



## the-royal-mail (Dec 11, 2009)

Can an employer require you to have access to a car? It would have to be written into your employment contract and then I would question the legality of that. I once worked a contract where they wanted me to have a car. Turns out I never needed a car. Good thing I didn't buy one, I carpooled instead. Saved $$$.


----------



## stardancer (Apr 26, 2009)

If you have to have access to a car for occasional use, and your employer reimburses you for mileage, then it is not an employment expense.

If you have to use a car in the course of your duties regularly, then it is possible to claim expenses against your employment income. The employer MUST complete and give you a T2200 each year for tax purposes. Then you can prorate expenses according to personal:work use. Note: if you are paid a non-taxable allowance for using your car, NO expenses are deductible.

So check out what the employer means very carefully.


----------



## MoneyGal (Apr 24, 2009)

OhGreatGuru said:


> If so I don't think you can claim any ownwership cost as a tax deduction.


He's talking about useage costs ("mileage"), not capital costs.


----------



## MoneyGal (Apr 24, 2009)

x-post with StarDancer, who took the time to get this right.


----------



## OhGreatGuru (May 24, 2009)

MoneyGal said:


> He's talking about useage costs ("mileage"), not capital costs.


No, in the examples he gave he's talking about multiplying the ownership cost (eg annual lease payments) by the ratio of business-use mileage to total mileage.


----------



## MoneyGal (Apr 24, 2009)

Stompie79 said:


> If I lease I get to deduct whatever % of the mileage is work related multiplied by the lease payment cost; or
> If I buy I get to deduct whatever % of the mileage is work related multiplied by30% of 50% of the capital cost (something called the 50% rule).


I understand this to mean he is deducting mileage costs (multiplied by a lease or CCA factor). Strictly speaking, these are useage costs. You and I are just inverting the equation, though. In any case, what StarDancer wrote is accurate.


----------



## sprocket1200 (Aug 21, 2009)

ohgreatguru has it right.

OP should get vehicle at maximum allowable lease rate by CRA, then have contract state much lower residual value to reflect 'extra mileage' (extra payments). this would give a nice low buyout cost at the end, which can then be cca'd to save more tax...


----------



## FrugalTrader (Oct 13, 2008)

To add to the conversation, if you use the car for excessive business KM's, you should add the business rider to your auto insurance.


----------



## kcowan (Jul 1, 2010)

sprocket1200 said:


> ohgreatguru has it right.
> 
> OP should get vehicle at maximum allowable lease rate by CRA, then have contract state much lower residual value to reflect 'extra mileage' (extra payments). this would give a nice low buyout cost at the end, which can then be cca'd to save more tax...


This is a good way to maximize the cost of acquiring a car. It creates a large deduction because it is a high cost.


----------



## sprocket1200 (Aug 21, 2009)

great point, frugal.

cowan, the total cost is not maximized as the residual value falls by the extra payment amount. you can write off the excess and save paying tax on that money. sure you have to have the cashflow at the start, but each year you get the benefit, and a huge potential windfall at the end...

if there is still confusion, suggest an actual example. i am willing to help.


----------

