In Canada, business owners can claim a tax advantage for the use of a vehicle for business purposes.  The CRA has some very strict guidelines.

The amount of the tax deduction is directly related to the amount of time the car is used for business.  For example, if the car is used to generate income for 60% of its use, then you can claim 60% of the lease cost.  There are additional expenses that can be claimed like insurance, repairs, licenses, etc.  There is a current cap in Ontario of $800 plus HST.  It is a good idea to make a large down payment on the lease since you may not be able to deduct the full use of the vehicle in the first year of the lease.

Purchasing a Vehicle

Purchasing a vehicle is different.  The tax deductions depend on the amount of the car at the time it is purchased and whether it is purchased outright or financed.  If the car is purchased in full without financing, the amount of purchase is spread out (amortized) over the useful life of the vehicle. Using depreciation, the amount is included in a Capital Cost Allowance (CCA) and a percentage is claimed each year.  There is a maximum allowance of $30,000 to prevent the purchase of a luxury vehicle.  There may be some incentives if you buy an energy-efficient vehicle by upping the maximum price to $55,000. 

If the car is financed, the interest paid during that year is a tax deduction, up to a maximum, of course. A proportionate amount of the vehicle usage, insurance, gas, license, etc. is a legitimate claim.

Sole Proprietorship

If your business is a sole proprietorship, you can deduct mileage on either a leased or purchased car.  You can use either the standard rate or the actual costs for a lease.  If you want to use the standard mileage rate on a leased vehicle, you must use this rate starting with the first year's tax filing and continue with that for all subsequent years. 

Leasing incorporates a number of expenses unrelated to taxes.  When you return the car to the dealership at the end of the contract, you must have completed all necessary repairs so that the vehicle is in stable condition.  There is also generally a limit on the number of kilometers and charges for excess driving.  The final issue is the interest rate you will be charged and billed on the loan.

Credit Rating

The last factor to consider is the credit rating.  With bad credit history, the payments will be higher regardless of whether you purchase or lease.  For someone with a bad rating, leasing would be the less desirable decision since the car could not be used as collateral.

Since both options have advantages and disadvantages, it may come down to a personal decision.  For a good-sounding board, talk with your accountant to see if he or she has any thoughts on the matter.

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- The Capex Team