Hi Everybody, I am Jonathan Sears from Sears Chartered Accountants. Thanks for watching my video today. Topic today is going to be should I buy or lease my vehicle. And if I have a corporation should I have them within the corporation or should I hold them outside of the corporation.
It’s not a difficult question, just a lot of facts that need to be looked at whenever we discuss this particular topic. First of all, let’s talk about some restrictions. For leasing you can have $800 plus HST a month, and if you buy you can write off a maximum of $30000 plus HST at 30% per year. So, considering those 2 facts and then considering everything else, it’s good to ask your account what is the best solution.
So basically, the main point, the big question is whether to lease or to buy and I ask my clients generally the same question. You flip your car every 4 years, and you typically have an expensive lease. Not always, but these are more the determining factors that make it better to have a lease and often makes it better from a tax perspective. If you are the kind of person who holds on to the car for a long period of time, and the car is not necessarily expensive for what I mean it’s probably less than $30000, it probably makes sense to buy the car outright or finance it. But again, the numbers have to be run to decide what’s the best way to deal with this.
The other part of the question of course is whether to hold the car within the corporation or outside personally. Again, the numbers have to be run by an accountant but in general I find it better to have the car outside of the corporation. Why I think it is better is because you get a very generous allowance,the CRA allowance which is 52 cents per kilometer for the first 5000 kilometers and thereafter its 46 cents. That gives you 2 advantages, one it gives you an opportunity to writeoff at those rates within the corporation and point number 2 it allows you to withdraw tax free money.
Sometimes, it does make sense to have the vehicle within the corporation, one of the non tax reason why it sometimes doesn’t is insurance rates can be quite high when you have your vehicle within the corporation. The other big thing to consider when you have the car within the corporation is how much personal time are you actually driving this car. This is something which has to be calculated which is called the standby charge. a standby charge is what is called a taxable benefit by CRA and unfortunately you have to pay tax on it. So very often, if you are driving this vehicle a lot of personal time, it does not make sense to have the vehicle within the corporation because you will end up paying more personal tax.
Thank you for listening today. Remember, for an accountant you can count on. Call a CA today.