Leasing vs. Buying a Company Vehicle

February 8, 2020

As your most trusted business partner, it is no wonder that we are asked on a regular basis which option is the best when faced with the dilemma of choosing a new vehicle.  I always start with the same line, “not every decision should be based on tax savings, sometimes you need to make the best choice for overall savings”, and in today’s competitive auto market, there are some unbelievable deals that defy the principals of tax savings.

So here is the nitty gritty on the CRA allowance’s for business usage of a vehicle based on the the lease .vs. buy options.

For many years, this was the best option for tax savings, but with the decrease in interest rates and the increase in vehicle purchase prices, this is now the less favourable choice for tax purposes.  This option allows the business to use up to $30,000 of the vehicle purchase price to expense over the life time of the vehicle; the same applies for the HST on the purchase.  You will also be able to expense a portion of the loan each year based on the business KM usage.  So, if you want a vehicle in this price range than this works beautifully, however a car with a higher sticker price would mean that you would need to apply the difference to your shareholders loan or owners draw.

The leasing option allows business owners to expense the business portion of the vehicles lease payment and HST each year up to a maximum of $800 plus HST for passenger vehicles.

Let’s look at a real life example
A mid-sized luxury vehicle with a sticker price of $45,500 with HST, is $51,415.00.  To compare apples to apples we will look at both options over a 4 year period.

If we financed this vehicle, with the dealer offering 0% financing, the monthly payment would be $1,071.15.  Leasing would cost 2% with the option to buy out this vehicle for $15,000 at the end of the lease, the monthly payment would be $800.37.

We will show the breakdown pre HST and assume 100% of the vehicle is being used for business (not realistic, but will give you a general idea of costs)

So if you were to finance:
Year 1-4 expense: Year 1: $4,500, Year 2: $7,650, Year 3: $5,355, Year 4: $3,748.50.
Total expenses for 4 years: $21,253.50
Total cost over 4 years: $45,500
So, you’ve written off 46% of your vehicles payments during the 4 year finance period.

If you were to lease:
Year 1-4 expenses: $9,604.44 each year, total expenses for 4 years $38,417.76. BUT at the end of the lease if you choose to purchase the vehicle, you will have an additional $15,000 in the buy back option.  Your total cost for this option with the buyback is $47,272.36.  So, you’ve written off 84% of the vehicle during the 4 year lease period, however, paid an additional $1,772.36 more then if you chose to finance….NOT bad considering the difference in allowable vehicle expenses…46% for financing to 84% for leasing!

Bottom Line, NO matter which option you chose, we are ALWAYS here to help make the right choices for YOUR business.