Automotive

Explain leasing a car & business write off?

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[OP]
Sr. Member
Apr 12, 2004
864 posts
1 upvote

Explain leasing a car & business write off?

Can someone break down the tax advantages of leasing a car while operating your own business? Where do you see the most tax advantage/profit from leasing over purchasing a car full in cash?

I've seen/heard many individuals create their own online blog and have monthly subscriptions or banners (to prove they are making income), but it is very very minimal - perhaps only $100-200 revenue annually. Regardless, income is income. How do they justify leasing their vehicle and writing off their new vehicle when they only earn $100/year, or even nothing from their blog 'business'.

Thanks.
59 replies
Deal Addict
Jan 5, 2004
3478 posts
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Toronto
Lease is an expense. If you buy the car outright, that's an asset, but you can claim depreciation on it.

You'll have to do the math and work out whether you can more "benefits" from lease vs own.

Also, if you share the car between business and pleasure, you can only write off a portion of your expenses. You should probably talk to an accountant before actually doing it.
Jr. Member
May 28, 2008
195 posts
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thephenom wrote:
Jul 30th, 2009 6:44 pm
Also, if you share the guy between business and pleasure, .....
:confused:
Deal Guru
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Jun 12, 2007
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Option A
If I lease a $30K car over 3 years with a $10K residual, then I write off about $20K in expenses over 3 years.

Option B
If I buy a $30K car, I can write off $20K in depreciation and have a $10K asset after 3 years

A very simple explaination is with option A, my business line of credit only takes a $20K hit whereas with option B, my business line of credit line takes a $30K hit (although I would have a $10K asset).

Say I'm a dentist. The main advantage with option A for me is cash flow and oppurtunity costs. I can take that extra $10K and use it to buy another dental chair. If I hire another hygenist, it would eventually earn me much more over 3 years than if I had taken the $10K and used it to buy the car. Say the extra chair earns me an extra $30K a year after expenses, then I would earn an extra $90K net after 3 years. That pays for the leased car and the $10K plus I would be ahead by $60K.

It's something your accountant would have to look at as to which is better for business purposes
[OP]
Sr. Member
Apr 12, 2004
864 posts
1 upvote
Thanks for the explanation.

Is there any advantages for your average john doe tax payer who receives a cash incentive and pays cash versus someone who leases but must pay a lease rate?
Deal Guru
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Jun 12, 2007
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Xtreme2001 wrote:
Jul 31st, 2009 7:31 am
Thanks for the explanation.Is there any advantages for your average john doe tax payer who receives a cash incentive and pays cash versus someone who leases but must pay a lease rate?
It's just whether you want to pay upfront or pay at the end.

Unless you can make more money with what you would have spent on buying the car, then leasing always costs more than buying (because you are paying at the end and the interest costs associated with that)
Member
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Jul 4, 2005
262 posts
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Markham
Option A Lease a $50K car for 3 years and write off payments of $30K.

Option B, Buy a $50K car. You can only depreciate the first $30K (it might be $32K). 30% per year (1/2 of 30% in the first year). Car on paper is worth $12.5K after 3 years. Then you sell the car after 3 years for $25K. Opps, you gotta pay back the government 12.5K worth of decutions. Total deductions over 3 years, $5K vs $30K leased.

I think leasing is $850/month max and buying is 30K maximum deductible price.

As for writing off, you are only writing off the business portion of the vechicle, say 50% business/personal. Driving from home to work is considered personal. Then that business portion is deducted from you business income. If you only made $200 the entire year on a blog business, you can only deduct $200.

So a $100 deduction at 50% personal times your marginal tax rate of say 42%, saves you $21 in taxes. Still much better than nothing but it's not the extravagant write-off everybody thinks it is.

If your incorporated, forget everything above. All different and it works the best to own a $2K clunker to get maximum perks.
l69norm wrote:
Jul 31st, 2009 12:10 am
Option A
If I lease a $30K car over 3 years with a $10K residual, then I write off about $20K in expenses over 3 years.

Option B
If I buy a $30K car, I can write off $20K in depreciation and have a $10K asset after 3 years

A very simple explaination is with option A, my business line of credit only takes a $20K hit whereas with option B, my business line of credit line takes a $30K hit (although I would have a $10K asset).

Say I'm a dentist. The main advantage with option A for me is cash flow and oppurtunity costs. I can take that extra $10K and use it to buy another dental chair. If I hire another hygenist, it would eventually earn me much more over 3 years than if I had taken the $10K and used it to buy the car. Say the extra chair earns me an extra $30K a year after expenses, then I would earn an extra $90K net after 3 years. That pays for the leased car and the $10K plus I would be ahead by $60K.

It's something your accountant would have to look at as to which is better for business purposes
Deal Addict
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Jan 5, 2006
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jrnight wrote:
Jul 31st, 2009 5:45 pm
Option A Lease a $50K car for 3 years and write off payments of $30K.

Option B, Buy a $50K car. You can only depreciate the first $30K (it might be $32K). 30% per year (1/2 of 30% in the first year). Car on paper is worth $12.5K after 3 years. Then you sell the car after 3 years for $25K. Opps, you gotta pay back the government 12.5K worth of decutions. Total deductions over 3 years, $5K vs $30K leased.

I think leasing is $850/month max and buying is 30K maximum deductible price.

As for writing off, you are only writing off the business portion of the vechicle, say 50% business/personal. Driving from home to work is considered personal. Then that business portion is deducted from you business income. If you only made $200 the entire year on a blog business, you can only deduct $200.

So a $100 deduction at 50% personal times your marginal tax rate of say 42%, saves you $21 in taxes. Still much better than nothing but it's not the extravagant write-off everybody thinks it is.

If your incorporated, forget everything above. All different and it works the best to own a $2K clunker to get maximum perks.

Sorry to bump an old thread, but I had a question in regards to my dad (he is looking at picking up a newer vehicle). He does not own his own business (it is an incorporated business) but requires vehicle use to perform his job, so would the 15/30% depreciation of the vehicle (of the $30k max) or $850 lease writeoff still apply to his scenario (of course that of which is used for business purposes)?
Deal Addict
Nov 27, 2003
1859 posts
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One thing people neglect to mention regarding leasing: if the MSRP of the car is over $30K (actually $34K), and you lease, the government claws back an amount pro-rated to the amount you are over that limit.

So even if you could drive a $70K car, and manage to get the lease payment under $850, you will not be entitled to deduct the full $850. The government does not want you using cars for "business" that cost more than $30K.
Deal Guru
Feb 29, 2008
13548 posts
1204 upvotes
Montreal
This thread is chock full of misinformation, where to start:

1. Max lease payment deductible is 800$
2. Max cap cost allowance for purchased car is on the first 30k sale price + interest.

http://www.taxtips.ca/smallbusiness/pas ... limits.htm

3. All deductions, lease or purchase are pro rated business to total km. If you have 10% business km, it makes precious little difference which formula you use. driving to work in the morning and back in the afternoon is NOT considered business use.

If you can read french, this is a good read

http://www.gasconca.com/automobiles.html
Deal Guru
Feb 29, 2008
13548 posts
1204 upvotes
Montreal
Asad_A203 wrote:
Sep 5th, 2010 6:56 pm
Sorry to bump an old thread, but I had a question in regards to my dad (he is looking at picking up a newer vehicle). He does not own his own business (it is an incorporated business) but requires vehicle use to perform his job, so would the 15/30% depreciation of the vehicle (of the $30k max) or $850 lease writeoff still apply to his scenario (of course that of which is used for business purposes)?

For your dad there are two options:

A. He owns the vehicle
B. The corp owns the vehicle


A. The corp pays him a flat 52c/km as an allowance. this a deductible expense for the corp, and a non taxable benefit for your dad

http://www.taxtips.ca/smallbusiness/tax ... owance.htm


B. The personal use of the vehicle becomes a taxable gain for your dad, while the vehicle expenses are deductible for the corporation. Generally speaking if less than 50% is business use, it's not worth it. For this consult an accountant or read the link above.
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Nov 7, 2006
7209 posts
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Toronto
MacBuster wrote:
Sep 6th, 2010 2:44 am
One thing people neglect to mention regarding leasing: if the MSRP of the car is over $30K (actually $34K), and you lease, the government claws back an amount pro-rated to the amount you are over that limit.

So even if you could drive a $70K car, and manage to get the lease payment under $850, you will not be entitled to deduct the full $850. The government does not want you using cars for "business" that cost more than $30K.

I don't think you know what you're talking about.
Jr. Member
Jan 16, 2007
128 posts
2 upvotes
Markham
mr_raider wrote:
Sep 6th, 2010 11:02 am

3. All deductions, lease or purchase are pro rated business to total km. If you have 10% business km, it makes precious little difference which formula you use. driving to work in the morning and back in the afternoon is NOT considered business use.


http://www.gasconca.com/automobiles.html

Regarding number 3:

Is driving to client's location to conduct a business service from home considered a business use? (It is still driving to work no?)
Deal Guru
Feb 29, 2008
13548 posts
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Montreal
ecyho wrote:
Sep 6th, 2010 2:56 pm
Regarding number 3:

Is driving to client's location to conduct a business service from home considered a business use? (It is still driving to work no?)

Yes. If your business is to go from client to client's house, and your primary place of business (i.e. your office) is your house.

If go to your primary place of business (office) in the morning and then go from there to your client, the first trip in the morning to the office is not business use but the subsequent trips back and forth are. An example of this would be salesman who checks in at the head office in the morning then goes from site to site.
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