Leasing Vs Buying A Car (Tax deduction on your vehicle) | How to Calculate a Car Payment

Are you in the market for a new vehicle right now?
Most of my clients asked me whether they should buy vs. lease a vehicle.
It isn’t an easy answer. It goes back to many different factors including:
· Interest rate on lease vs. finance
· Purchase price under lease vs finance vs cash purchase
· Maintenance cost of the vehicle
· Your preference - do you want a new car every few years?
· Can you write off any of the vehicle expense?
· How well does your vehicle maintain its value?
In today’s video, we’re going to use life data from Honda.ca to analyze if a taxpayer should purchase or lease a vehicle.
You will get to see:
· Difference between tax write off on buying vs. leasing
· True after-tax cost calculation between buying vs. leasing with 4 year analysis vs. 8 year analysis
· How to use Lease First and Purchase After to maximize your tax deduction
Remember, every vehicle is different and you should analyze based on your particular deal.
#buyorlease #carpayment #buyorleaseacar #buyvsleaseacar #tax deduction on your car

[@smileysmileking]

As a financial advisor and wealth manager, I can confirm content of this video is comprehensive and of a very high quality. Thank you, Cherry, for your service to society.

[@RealEstateTaxTips]

Thanks Smileysmileking

[@sarahneal4356]

Excellent information. Best explanation I’ve heard all in all my years of asking my accountant to explain to me the difference. 👍🏻

[@RealEstateTaxTips]

Glad it was helpful!

[@paulpeca5912]

This channel is phenomenal! Thankyou for all your hard work Cherry!

[@RealEstateTaxTips]

Glad you like it

[@theprovincialgentry]

This is literally the best Canadian real estate tax channel on KZbin. You're the best Cherry ✊

[@RealEstateTaxTips]

Thank you !

[@tomtommy-do9er]

Love excel spreadsheet examples. The comparisons help sooo much to understand!

[@RealEstateTaxTips]

Glad it is helpful

[@nadinemcmaster]

Great Video! Nice clear explanation, Thank you!

[@igotbit9454]

Love this channel!! thanks for the video.

[@momoffourkids1]

Great video Cherry - timely for us as we are in the market for a new vehicle

[@RealEstateTaxTips]

Amazing. Glad it is helpful

[@josephrj17]

Great content, thanks for the detailed explanation!

[@RealEstateTaxTips]

Glad you like it

[@elenagordon9289]

Great video! Thank you Cherry! I was thinking to by out my car next year by the end of my lease because car prices went up a lot and my buyout will be based on the old price. After your explanations and calculations I know for sure, this is the right thing to do.

[@RealEstateTaxTips]

Thank you. Same here. I am planning to buy out my Odyssey. Buyout price of Honda Odyssey is always below market value of similar vehicle to begin with. Currently, it's at least 10K below market value. Crazy, isn't it?

[@maxviskovich7894]

Your amazing! So helpful n appreciate your wisdom.

[@RealEstateTaxTips]

So glad!

[@vamshipalavalasa3465]

Like your explanation, great video. 👍

[@RealEstateTaxTips]

Glad you find it useful

[@ianfolkes2861]

Great explanation Cherry! One extra consideration is that when returning a leased vehicle, chances are high that you will get hit with extra costs. Most car manufacturers now use 3rd party lease end inspection companies and their job is to find as much as possible so that you have to either pay the extra amount or have it added to your next vehicle. It can potentially be thousands of dollars. If this happens, it will make leasing much more expensive than the other two options (purchase and lease/purchase).

[@RealEstateTaxTips]

That's great tip! Thanks for the share!

[@sunpreet1994]

You can purchase lease guard or protection which adds up to your monthly payments and you don’t have to worry about it.

[@woodys.7840]

That's possible, I usually return the car one year before lease end and get a new car with the same monthly payment to avoid penalty, I have my 6th cars so far. However, in current market, it's hard to keep the same monthly payment for the same vehicle, I may have to buy it next year.

[@letdmichael]

awesome... very great contents... I have learned something new today... will apply your teaching in the next purchase... thank you so much...👏👍

[@RealEstateTaxTips]

Wonderful!

[@KD-mz5xv]

enjoyed great topic

[@ramonpereztoledo8631]

Great explanation!

[@RealEstateTaxTips]

Glad its useful

[@serhatalisimsek9370]

Thank you, this is very helpfull video.

[@RealEstateTaxTips]

Glad you find it useful

[@andykim8657]

Hi Cherry. Thank you for another great video. I guess you forgot 90% business use for year 2-4 on deduction calculation for purchase?

[@kerrenjanssen9577]

Thanks for the great video. On a related side note, for anyone interested in a Tesla lease, Tesla does not allow you to buy out the lease for Model 3 or Y. And on Oct 29th 2021, Tesla also removed the option for a dealer to buy it out. Useful info for anyone looking at Tesla lease buyouts.

[@RealEstateTaxTips]

Many thanks to your comment. Tesla, which is also a EV, is a different animal altogether. If you are considering buying a EV and NOT take any government rebate, you can have a larger write off at the beginning than $33900.

[@stopit4uca]

Tell us a little more about this animal Tesla EV And the benefits of leasing Or not leasing. As well as other EV vehicles out there. And there pros and cons.

[@phyllis2866]

@@RealEstateTaxTips can you do a deeper financial analysis of LEASING vs. BUYING a Tesla in 2023? 4 years vs 8 years? Would love to see your excel work.

[@adrienc1159]

Awesome video thank you !!! I have just one question : Can you deduct your leasing car cost if you are employee in a company but you’re using your car 90%+ to go on job site ( or company wise)??

[@RealEstateTaxTips]

Youre welcome! Yes, only if your employer issued a T2200 form specifiying that you are using your car for purpose of employment purpose. And you also need to offset what you claim with the allowance you are getting from the employer.

[@NovaGamerNet]

Great video and explanation. could you please post a link in the description to this spreadsheet so that we could download it and adjust the values to see which option is best for us?

[@RealEstateTaxTips]

Wish I could, it isn't a sophisticated spreadsheet that's meant for others to use. It's a simple and easy spreadsheet designed for my own analysis only.

[@Ojoj.101]

Is it better to write off sole prior in first year or jump in to corporation to have more write off?

[@ajaychandel516]

Question: ... If I use your video example and I am leasing from Jan to Nov I claim $ 6086.66. Then in December I Purchase a NEW car for $43,605. Am I now claiming in my expense the Lease amount of $6086.66 + $10,025 both in the same year so total of $ 16,111.66 ???

[@sunkneee]

@CheeryChan, I'm in the GTA, and I've been burnt by so many accountants. Finally some solid accounting tips that I couldn't got elsewhere. If I have a rental property 20 mins from my home, can I claim a porting of a leased car, let's say 20%?

[@RealEstateTaxTips]

actual % is based on your mileage log, can't randomly pick a business use %. It must be documented and supported.

[@ralb97]

I'm still confused about "Tax Write off @ 40%" on line 24. What does it really mean? Where did you find this percentage?

[@mr.cavaliere]

This was a fantastic breakdown! Thank you very much for the explanation. When purchasing do you recommend my corporation to buy the vehicle or would I buy it personally?

[@RealEstateTaxTips]

That is a question which requires a deeper dive into your overall use of the vehicle and then work through the taxable benefit calculation. I would definitely recommended you schedule an appointment with my team to go through this process with you and see which option is best for you.

[@mr.cavaliere]

@@RealEstateTaxTips Sounds great will do that for sure. What is the best way to reach you or your team?

[@user-yt7ql4tm9v]

Hi , i really like your you tube channel and topics are interesting especially on tax related matters . I just newly migrated in canada last year november with my family. I am currently employed with annual income of @ 60k and my wife and me were thinking on how to get more tax relief from out from my annual income . I also thinking to invest in buying condo unit to build more passive income but not sure if this is a good decision to make .

[@SuzukiKid400]

Great video, thank you. What happens if I start using an existing 5 year old vehicle I own for business use? Does “year 1” start using the current market value of the vehicle, or do you calculate all through from year 1 until year 5 and just use the CCA from the year 5 calculation?

[@RealEstateTaxTips]

A conservative approach is to take the current market value of the vehicle and claim CCA from there on.

[@jonathanfleming533]

Hi, this may be an off topic question. But could you explain (video perhaps?) regarding tax deductions available for families interested in earning passive income by offering their vehicle on ride sharing apps like Turo? Is it possible to deduct repairs and maintenance? Great videos and thanks!

[@RealEstateTaxTips]

The cost of maintaining the vehicle would be a deduction from the income earned, there are some considerations you need to make and I would recommend you schedule a call with my team to explore them.

[@taranealmcnally]

Do you have a similar video for EVs purchased by a business?

[@RealEstateTaxTips]

Thanks for the recommendation! Will put it in our list.

[@katM-jd2il]

I am happy to learn from you. My sister rent the house, but her accountant told her that she can't claim any expense. However, she end up paid back to gov. Thousands. In addition, income earned less than $50000.

[@RealEstateTaxTips]

I recommend that your sister reach out to my team and schedule an appointment to review her situation, once we have a better understanding then we can advise of what the next steps should be.

[@katM-jd2il]

Thank you. How can we contact your office?

[@RealEstateTaxTips]

You can reach out to us on realestatetaxtips.ca/contact-us/ Thanks!

[@MBlais675]

Great information Cherry. Can I lease my vehicle under my business (or pay the lease from my business account) even if I use it only 20% for the business?

[@RealEstateTaxTips]

You can but you may trigger some significant amount of standby charge that you would have to report personally and pay tax personally. Make sure you consult with an accountant before doing so. You're always welcome to reach out to our team at [e-mail] or 416-548-4228 and our team can walk you through each scenario.

[@theguywiththehat99]

Wouldn't the CCA in the 1st year under the purchase scenario be only 15% not 30%? (due to CRA rule that first year CCA is only 50% of the max)?

[@RealEstateTaxTips]

Great question. Currently accelerated investment incentive is applicable and full CCA can be claimed the first year.

[@NovaGamerNet]

What is the 50% rule or "half-year rule"? Straight from the CRA site it's as clear as mud. Column 5 - Base amount for capital cost allowance Base your CCA claim, if any, on the amount in this column. If you owned the vehicle in 2023 and still owned it at the end of 2023, enter in column 5 the same amount you entered in column 2. If you acquire a class 10.1 vehicle in 2023 that is not accelerated investment incentive property (AIIP), you can only claim CCA on 50% of the capital cost. This is known as the 50% rule. If you acquired a class 10.1 vehicle in 2023 that is not AIIP and you still owned the vehicle at the end of 2023, enter 50% of the amount in column 3 in column 5. The 50% rule does not apply to AIIP. If you acquired a class 10.1 vehicle in 2023 that is AIIP and you still owned the vehicle at the end of 2023, enter 1.5 times the amount in column 3 in column 5. If you acquired and disposed of the same Class 10.1 vehicle in 2023, enter 0 in column 5. For a Class 10.1 vehicle you disposed of in 2023, you may be able to claim 50% of the CCA that would be allowed if you had still owned the vehicle at the end of the year. This is known as the half-year rule on sale. You can use the half year rule if you owned, at the end of 2022, the class 10.1 vehicle you sold in 2023. If you meet this condition, enter 50% of the amount from column 2 in column 5. WHAT? how is anyone suppose to understand this?

[@RealEstateTaxTips]

This reminded me the years that I was working a student at various CA firms. Half year rule basically accounts for the year that you purchase or dispose the asset - but it has been temporarily lifted on the purchase side.

[@enjoythedreamlife5658]

When you write off the CCA in the first year it is at 50% not 100% of the 30% allowed. Secondly If the car has a 3 year or 120K warranty, there would be repairs in the 4th to the 8th year . I would estimate those costs in as well. My repair cost for an 8 year old $2,200. I have 96K on my car

[@RealEstateTaxTips]

Hi Enjoy the Dream Life, seems like you know tax rule very well. :) 100% claimed in first year is based on the accelerated investment incentive offered by the government to encourage us to invest in our business. Feel free to check out CRA's website: www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/report-business-income-expenses/claiming-capital-cost-allowance/accelerated-investment-incentive.html Once you have done your analysis incorporation the $2,200, feel free to send me your video and happy to share it too! All the best.

[@Broxty]

Fantastic information

[@RealEstateTaxTips]

Glad it was helpful!

[@laurat4313]

Hi Cherry... is there a cap on lease? like it is with the maximum of a car purchased?

[@RealEstateTaxTips]

Yes, maximum monthly payment is $850, but the actual cap on the monthly lease payment is calculated based on the purchase price of the vehicle.

[@nancym2190]

Can you do one for electric car lease vs finance

[@RealEstateTaxTips]

I'll keep that in mind for future recording.

[@Everythingonearth23]

Hello Cherry, could do the Math for EV vehicle as well? Thank you and more power to your Channel

[@RealEstateTaxTips]

I will try!

[@Ma_Ogtahay24]

Great content. What about if I Cash out and purchase with a Cash and use for Uber 90%. Example Honda Civic 2022 with $ 32,000CAD. Thank you 😊

[@RealEstateTaxTips]

If you purchase a new car and use it 90% to earn income from Uber, you can deduct up to 90% of $30,000 plus HST. Not really sure your question re cash out, best to speak to a professional accountant...

[@Ma_Ogtahay24]

@@RealEstateTaxTips thank you so much.

[@jacksonc911]

Thanks for your sharing! Is there any tax advantage if I purchase the vehicle in lump-sum compare to lease or finance? In addition, should I buy the vehicle under personal name or company (corp) as a small business owner?

[@RealEstateTaxTips]

Hi JC, if you purchase the vehicle, the tax implication is the same as if you were to finance it except that you would not have incurred the interest expense on money borrowed to purchase the vehicle. Sometimes though, if you buy a car out right, you get more discount compared to leasing and finance...that's the advantage that you're getting, not so much from a tax perspective. Buy under a corp or personal name really goes back to how much you use your vehicle to run your business. It's a complicated topic that would probably require another long video to go through. If you haven't subscribed, make sure you do so when our video on it come out, you'll get notified.

[@Npowa2.0]

Hello, I can write off mileage I use for work purposes on my leased car right?

[@RealEstateTaxTips]

You can only do that if you are using your vehicle outside of going to your office and you have a form from your employer specifying that you are required to use your vehicle for employment purpose.

[@faithsham563]

How can you guaranteed to be the buyer under leasing post purchase. Does it have to go on the contract? Does CRA has to see the contract ? If yes, will not be a problem. Thanks please respond!

[@RealEstateTaxTips]

Hi Faith, I am a bit confused. One of the options illustrated was to first lease and then purchase. Currently, lease options have a buy back clause that specifies how much you would have to pay to buy out the car at the end of the lease period. The option is with the buyer. Now, this is written from a Canadian perspective. My understanding with the US market is also very similar. Hopefully this answers your question.

[@azeemgreen1990]

how do you transfer a Personal Car loan to a business such as Corporation/LLC?

[@RealEstateTaxTips]

Depending on your particular situation, this may involve the transfer of the vehicle to the corporation. It may or may not be advisable to transfer the ownership of your car to your corporation. Please be sure to consult with someone who understands your situation before you decide on anything. As always, you're welcome to contact our office if you need further help.

[@gkmediastudio925]

Car repairs on an older vehicle have not been taken into consideration, also some people have a car allowance this has not been taken into consideration. On an older vehicle you will be spending more money on car repairs

[@chrstphrszn9338]

ill be an owner operator soon, i use the vehicle all the time,. will that make 100%? or still a certain % of a write off

[@RealEstateTaxTips]

We typically advise our clients to keep an autolog book to document their business usage for their vehicle. If you have one vehicle for yourself and your business, it is difficult to argue that 100% of your vehicle use is business use. You still need to eat, visit your families, those are all personal use mileage.

[@nzonal]

Thanks for the video! That's very helpful as I am thinking to replace my current vehicle with an EV (with a higher maximum deduction on purchase) and trying to learn which way would save more money in the long run. A quick question, 8:05, the Year 1 deduction has the factor of 90% calculated in the formula, but Year 2 - Year 4 don't. My understanding is Year 1 with 30% * 90% * Maximum deduction + interest cost * 90% as well divided by 7 years. Year 2 is the Maximum deduction ($33,900) - Year 1 deduction ($10,025) and * 30%, here, this 90% business usage factor did not apply in the formula. The interest part however has the 90% factor considered. The video has enough details for me to make my own spreadsheet I copied your formulas there, but I could not figure this part out. Thank you for your time!

[@TL-tu1cd]

am also confused on calculation.

[@DjMerv]

If my wife is self employed and the car she drives is under both our name, can we file for tax deduction the car payment? Also, I thought you can only tax write off car payments if it is lease not purchased when you are self employed.

[@RealEstateTaxTips]

When you are self-employed, you can claim the capital cost allowance on a car that you own, up to the business use % and the CRA imposed cap. If you lease a car and use your car, you can also claim the lease payment, again, up to the the maximum imposed by CRA. If the car is owned by both of you, she is only eligible to claim her ownership % of it.

[@DjMerv]

Thanks for the tips.

[@jasonozzy8655]

Can cca on a rental property result in a loss? if so, can the loss be used against other income?

[@RealEstateTaxTips]

CCA on rental property cannot result in a loss.

[@jasonozzy8655]

@@RealEstateTaxTips Are there any situations, deductions, or depreciation that can result in a loss from rental property? I really enjoy your videos, do you service clients in British Columbia or are you restricted to Ontario?

[@RealEstateTaxTips]

@@jasonozzy8655 thanks and appreciate your comment. We do serve clients all across Canada except Quebec. Feel free to reach out to our office.

[@mikemcguire2458]

Des it matter when in the tear you buy the vehicle? What happens if I buy one in December?

[@mikemcguire2458]

When in the yèar

[@RealEstateTaxTips]

@@mikemcguire2458 it doesn't matter what time of the year you are buying, at least not based on current rule.

[@416truckrepair]

Would this apply if the car is under a corporation ?

[@RealEstateTaxTips]

Own a car in a corporation adds more complications... If you're owning a truck (that's not a passenger vehicle per CRA's definition) - that can be a different story. If you have specific question, feel free to reach out to our team at [e-mail] or call us at 416-548-4228 and we'll gladly help you out.

[@stopit4uca]

This might sound like a silly question but so you're using your vehicle for business purposes and then you go for lunch would that Recommute in the vehicle be considered personal travel.

[@RealEstateTaxTips]

Not sure if I understand your question correctly - Mileage incurred to commute to your office and lunch are considered personal mileage and not business related unfortunately.

[@stopit4uca]

@@RealEstateTaxTips thanks for clarifying the office part because I totally thought that someone traveling to the office that would be considered business related travel since that's where they conduct business as well From getting calls from new and old clients booking jobs doing paperwork and other business related things that are part of running a business. So it just applies to one way travel from A to B. Thank for taking the time to answer my question.

[@ZaydenJayy]

What if your 1099 and lease the vehicle under personal credit

[@RealEstateTaxTips]

My context is purely done in the Canadian tax perspective.

[@cryptoblockmanagement2058]

I want to lease a Tesla can a $55k downpayment be completely written off using EV CCA

[@RealEstateTaxTips]

First of all, lease payment deduction is different from vehicle purchase. If you lease, you can't deduct $55K downpayment to lower your lease amount. If you purchase, you are eligible to claim CCA. provided that you are using your vehicle for the purpose of running your business, the business portion of the vehicle can be written off. Tesla qualifies but you need to be mindful of not taking any government rebates or else you can't qualify to get the extra CCA writeoff.

[@cryptoblockmanagement2058]

@@RealEstateTaxTips thanks.. it will be purchased by my company and used 95% for business.. so if I buy a Telsa it will be able to deduct 95% of $55k in the first year?

[@kimpaolatto1983]

I find it hard to believe that you would get $18000 for an 8 year old vehicle. Plus, you're not taking into account the cost of brakes and tires which would probably need to be done twice in 8 years.

[@RealEstateTaxTips]

Kim, great comment. I did mention at the beginning of the video that maintenance and repairs are not accounted for in this analysis. Some cars do require a lot more maintenance and repairs than others. My experience with Honda Odyssey (I've had two of them for the last 7 years) is that it requires very limited maintenance. With respect to the value at the end of the car, every car has different value at the end of 8 years. If you go on Autotrader.ca, most 2014 Honda Odyssey are asking for $20K+. I don't know how much they actually sell them for so I picked $18K as the resale value in my analysis. Of course, a different car has a different resale value and it's just so happen Honda Odyssey retains its value so well even after 8 years.

[@zenniegalway4192]

I thought there is a 50% CCA on the first year.

[@RealEstateTaxTips]

They put it on hold for a number of years

[@ImranSaddal]

As a contract, Last year I bought a 2021 model vehicle in cash under my corporation and had CRA refund the HST paid on the Vehicle. Now I am thinking of selling the one I bought last year and purchasing the 2022 model in cash again (since used car prices are up). Since the 2021 car title is under my Corp, can I sell the Vehicle on Kijiji in cash or do I have to charge GST/HST to the new owner? What are my options? (I want to sell privately as dealers don't pay top dollar for trade or buyback) Since I got refunded for the HST from CRA for 2021 one, can I request HST refund for the 2022 model again this year? Last year I had 15% cost of the Vehicle written off in Corporation taxes. What will happen when I buy the 2022 vehicle, it will again entitle to the 15% or 30%(second-year car deprecations rate)? What are my options?

[@RealEstateTaxTips]

Hi Imran! You can come in or phone consult with me and my team, to make sure that your structure meets all the legal and tax concerns. For any personalized consultation, we advise that you book an appointment. Feel free to contact us at 416-548-4228 or email us at [e-mail]. We will be sure to address all your questions.

[@seyiakinbade7784]

It would appear to me that leasing makes sense, than buying a car.

[@RealEstateTaxTips]

It really goes back to your particular situation. I've leased and purchased.