When you have a major purchase coming up, it deserves some thought and a bit of analysis.
I love to pick my vehicles based on how pretty I think they are but that doesn't really make good business sense.
Handling your business vehicle purchase in the wrong way can cost you a lot of money and headache.
Although you might actually look forward to the opportunity to build a close relationship with your tax auditor in which case don't worry about reading this article.
If you have a business there are a few things you want to be aware of before you go and purchase that vehicle you fell in love with.
The tax information in this article is for people living in Canada.
I am sure there are somewhat similar rules in other countries though so read on and ask your accountant how these issues might apply to you! Ok, so lease or buy is one of the big questions.
The first thing I would do is decide what kind of automobile consumer I am.
Am I going to change vehicles again in another 3-5 years? Or do I like to hang on to my vehicle until they are officially declared vintage? Do I need to have a new vehicle in order to project the right kind of image to my clients? A realtor or mortgage broker who is going to visit clients might want to keep a vehicle that is newer in order to project an image of success.
If you like to turn over your vehicles every 3-5 years leasing can be a better fit for you.
The next thing is to head over to Google and search for a tool to figure out which option is going to cost you more money in the long run.
A good one is on the Canada Business government website.
Your business tax rate will depend on which province you are in and again if you do a Google search you will find your tax rates.
The third thing is to consider actual cash flow, sometimes cash flow is limited and you will need to make your decision purely on how much money you have available to make payments.
Although if this is a deciding factor you probably want to put off a new vehicle until your cash flow improves.
That covers one big question.
Another big question is whether or not to purchase the vehicle in the company name or in your personal name.
The rule of thumb here is based on how much you are using your vehicle personally.
If the personal use is more than 15 - 20% of your total use I would put the vehicle in your own name and charge the company on a PER kilometer basis (the rates per km change each year but right now are $0.
52 for the first 5,000 km and $0.
46 for any km after that).
If you pay yourself at those rates per km you can deduct the expense in your company and not claim it as personal income.
If you pay yourself a flat vehicle allowance out of the company this is considered taxable income for you and must be reported on your tax return.
If you decide to place advertising on your vehicle for your business, you work all the time (that's a different talk we have to have) or you have a second car/motorcycle/truck/bicycle/bus pass that you use when you aren't working then you will want to put it in the company name.
There is still personal use.
You have to acknowledge that the company is providing you with a car/truck to use personally and add a standby charge and operating benefit to your personal tax return each year.
Your accountant will be able to calculate this for you.
When you are running your business unincorporated or you are a partnership then there is no decision between in the company or personally.
You are considered to have purchased everything personally and you will want to keep track of all your expenses as well as keep your mileage log and enter all this information on your business income schedule on your tax return or better yet, give it to your accountant.
Finally I would consider total cost.
The thing to be aware of when purchasing an automobile for business use is that there are limits on how much Canada Revenue Agency will let you expense against your business income.
Basically they won't let you buy that Lamborghini and enjoy the tax benefits.
The limits change every year, right now it is $30,000 plus GST and provincial sales tax (PST), or HST if you purchase and approximately $800 per month for leasing although it could be less.
Again there is a calculation you have to go through.
Don't forget these rules apply to vehicles that you use to drive yourself around in.
If you buy a van for delivering products or to carry all your tools in while visiting customers these rules don't apply.
CRA makes a distinction between what they call a "passenger" vehicle and that is what all these rules apply to.
If you really want the technical definition of passenger vehicle email me and I will send it to you.
I hope you are still awake! I know that this isn't always exciting stuff to read but it is they are important things to think about before you go out and commit a large chunk of your annual income to something.
You need to know that everyone's situation is different and while I can give you general advice it is always good to seek confirmation from your accountant who should know your business goals and setup.
Tax laws are complicated and so take this information as it is intended, a bit of a background on issues that you might consider in the buying a vehicle process.
I love to pick my vehicles based on how pretty I think they are but that doesn't really make good business sense.
Handling your business vehicle purchase in the wrong way can cost you a lot of money and headache.
Although you might actually look forward to the opportunity to build a close relationship with your tax auditor in which case don't worry about reading this article.
If you have a business there are a few things you want to be aware of before you go and purchase that vehicle you fell in love with.
The tax information in this article is for people living in Canada.
I am sure there are somewhat similar rules in other countries though so read on and ask your accountant how these issues might apply to you! Ok, so lease or buy is one of the big questions.
The first thing I would do is decide what kind of automobile consumer I am.
Am I going to change vehicles again in another 3-5 years? Or do I like to hang on to my vehicle until they are officially declared vintage? Do I need to have a new vehicle in order to project the right kind of image to my clients? A realtor or mortgage broker who is going to visit clients might want to keep a vehicle that is newer in order to project an image of success.
If you like to turn over your vehicles every 3-5 years leasing can be a better fit for you.
The next thing is to head over to Google and search for a tool to figure out which option is going to cost you more money in the long run.
A good one is on the Canada Business government website.
Your business tax rate will depend on which province you are in and again if you do a Google search you will find your tax rates.
The third thing is to consider actual cash flow, sometimes cash flow is limited and you will need to make your decision purely on how much money you have available to make payments.
Although if this is a deciding factor you probably want to put off a new vehicle until your cash flow improves.
That covers one big question.
Another big question is whether or not to purchase the vehicle in the company name or in your personal name.
The rule of thumb here is based on how much you are using your vehicle personally.
If the personal use is more than 15 - 20% of your total use I would put the vehicle in your own name and charge the company on a PER kilometer basis (the rates per km change each year but right now are $0.
52 for the first 5,000 km and $0.
46 for any km after that).
If you pay yourself at those rates per km you can deduct the expense in your company and not claim it as personal income.
If you pay yourself a flat vehicle allowance out of the company this is considered taxable income for you and must be reported on your tax return.
If you decide to place advertising on your vehicle for your business, you work all the time (that's a different talk we have to have) or you have a second car/motorcycle/truck/bicycle/bus pass that you use when you aren't working then you will want to put it in the company name.
There is still personal use.
You have to acknowledge that the company is providing you with a car/truck to use personally and add a standby charge and operating benefit to your personal tax return each year.
Your accountant will be able to calculate this for you.
When you are running your business unincorporated or you are a partnership then there is no decision between in the company or personally.
You are considered to have purchased everything personally and you will want to keep track of all your expenses as well as keep your mileage log and enter all this information on your business income schedule on your tax return or better yet, give it to your accountant.
Finally I would consider total cost.
The thing to be aware of when purchasing an automobile for business use is that there are limits on how much Canada Revenue Agency will let you expense against your business income.
Basically they won't let you buy that Lamborghini and enjoy the tax benefits.
The limits change every year, right now it is $30,000 plus GST and provincial sales tax (PST), or HST if you purchase and approximately $800 per month for leasing although it could be less.
Again there is a calculation you have to go through.
Don't forget these rules apply to vehicles that you use to drive yourself around in.
If you buy a van for delivering products or to carry all your tools in while visiting customers these rules don't apply.
CRA makes a distinction between what they call a "passenger" vehicle and that is what all these rules apply to.
If you really want the technical definition of passenger vehicle email me and I will send it to you.
I hope you are still awake! I know that this isn't always exciting stuff to read but it is they are important things to think about before you go out and commit a large chunk of your annual income to something.
You need to know that everyone's situation is different and while I can give you general advice it is always good to seek confirmation from your accountant who should know your business goals and setup.
Tax laws are complicated and so take this information as it is intended, a bit of a background on issues that you might consider in the buying a vehicle process.
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