When determining whether to buy a lease a car, there are a few important aspects to first take into consideration before making your decision:
In a lease agreement, if you already know that you won’t meet the mileage limits set out in the lease terms, consider the fact that you would likely end up paying for mileage you won't ever use. If that’s the case, financing would be the more fiscally responsible decision.
Typically, during the lease or finance term of a vehicle, the car is covered through a warranty. Some individuals prefer to have a car that is always under warranty, so in case something goes wrong, the car is always covered under the agreement. If you purchase a vehicle, you’re generally only able to get a three to four-year warranty, so for the latter half of the life of the vehicle, the owner will be the one responsible for any unforeseen issues, usually out of their own pocket.
For those who want to avoid the risk of dealing with and paying out of pocket for any future vehicle issues, leasing would be the ideal option since the vehicle would remain under warranty for the duration of your lease.
Some people love to have the latest and greatest when it comes to their vehicle and flip their cars every few years. Others enjoy not having the responsibility of negotiating a trade-in or resale of their car. If that’s the case for you, then leasing is certainly going to be your best option. If you’re the type of individual who likes to own a car for a longer duration and not constantly be negotiating terms of leases, then purchasing or financing the vehicle would make sense for your situation.
As shown in the analysis, where the vehicle is used more than 50 per cent for business purposes, regardless of whether you are going to lease or purchase a vehicle, doing so through a corporation is much better than paying out a salary to pay for it personally. Where the vehicle is used less than 50 per cent for business use, the same holds true if you intend on leasing a vehicle. However, if you intend on purchasing a vehicle, due to increased taxable benefits from using the company vehicle for personal purposes, it becomes more costly for the corporation to own the vehicle, therefore is more tax efficient for the vehicle to be purchased personally.
The differences between leasing and purchasing within a corporation are insignificant and ultimately come down to the three key considerations discussed above (typical milage, warranty, and personal preference).
The analysis also shows leasing a car tends to be more cost efficient than purchasing a car. The difference between the two depends on the resale or trade-in value of the purchased vehicle.
The decision to buy or lease a car, and whether to do it personally or through a corporation, may seem overwhelming but our team of tax and advisory professionals are ready to help you every step of the way. Our experts will provide strategically tailored advice so that you’re confident in making the right choice for your specific situation.
This article has been prepared for the general information of our clients. Please note that this publication should not be considered a substitute for personalized advice related to your situation.
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