Phaedru5

Hi, I am sure there have been many threads on the subject in general so I will try to give as many specific details as possible.

I am employed in a sales role but home based. I get a car allowance from my company but its lumped in with my salary and is taxed as per the salary. So with that I am to purchase/lease my own vehicle.
I will cover a lot of km as I am a sales territory manager for all of interior and northern BC.
Most of the km on the vehicle will be business miles but I will also use it for personal, probably 80/20.

I am looking at getting something like a Silverado 1500 or F-150 which new are around $50,000 so I have been looking at getting a 2-3yr old for abit less. Or lease a new one.

My question is, which way is the best for tax deduction purposes. My boss was explaining some of it to me today how I can deduct the business use portion of the lease payments or of the depreciation if I purchase a car, but it all sounded abit complicated and was only hypothetical. For example I was thinking to put down a large deposit on a used vehicle and finance the rest but then I think the deposit isn't a deductible. It seems like to finance a vehicle the more expensive it is the more you can deduct (up to $800pm I think).

I know the old arguments for lease/purchase. To be honest Im probably a purchase kinda guy usually but being new here I also just kinda want the lowest payments and most tax deductible for the first 2-3yrs until we're really settled and then I could always get something longer term in the future.

Has anybody in a similar position made the decision to lease/purchase, what was the outcome, and what was it based upon?

dbd33

I knew that I would not keep the log books and whatnot needed to substantiate a business/domestic split in usage of the vehicle so I had two vehicles, one for business and one for domestic. The business vehicle was leased with the payment being written off and the domestic one existed only in the form of ownership documentation and current license plates; the physical vehicle having long since gone for scrap. This arrangement survived two tax audits, I'm sure a non-existent log book would not have.

Eventually the rules changed so you could only write off a cheap car or a small portion of a decent car. I gave up writing any of it off.

Atlantic Xpat

Something to consider with a lease - leasing is over a specified mileage, generally 20k p.a. although you can usually get higher allowances for increased monthly cost. If you exceed the allowed mileage you pay penalty fees per km over. These can quickly add up and make it uneconomic to do anything other than buy out the vehicle at the end of the lease. So if you are going to do lots of miles for work, make sure you are baking that into your financials.

Aviator

There are a lot of restrictions on what expenses an employee can deduct and how to do it. I would get tax advice from an an independent accountant. Not all employees cannot deduct vehicle expenses or CCAs and there is a lot of record keeping when you can. Records have to be kept for 7 years. Also check the full running cost of the vehicle per KM to see how good a deal you are getting. There is a calculator on the CAA website. A Mazda CX3 costs something like 55c a km, we just did this for an employee.

For employers, the employee buying their own vehicle is a great deal. Not always so much for the employee. If a large bill comes in, the bill is the employees and it is not fully deductible. I would sooner have my employer reimburse mileage and not have it included in salary, this inclusion could also push me into a higher tax bracket for income. This could affect investment income, such as interest or dividends. The commitment will also have an impact on ones credit report, good if all the payments are made, but depending on disposable income, could affect available credit for other loans.

This is the form that has to be filled in to claim expenses https://www.canada.ca/content/dam/cr...7/t777-15e.pdf

If you are able to write down the depreciated cost. When you sell the vehicle, if you get more than the depreciated value, this could be taxable.

Whether financing or leasing is more tax efficient, depends on your circumstances. It is easier to define for a business. The deposit amount does not come into a tax calculation, the deductible amount is based on mileage.

The rules for a self employed and business are quite different to an employee. Where deductions are allowed, for a business or self employed, the leasing cost can be deducted in the same year it occurs, but no CCAs as the vehicle is leased not owned. For finance, the interest is deductible each year, plus the appropriate amount of CCA.
In both scenarios running costs are deductible.

There are lots of considerations, I would speak to an accountant to get advice before, as each situation is different.