Blogs
Is It Better to Buy or Lease a Company Vehicle? - 30th October 2017
If you need a car to operate your business,
you may wonder whether it makes more sense to purchase or lease.
On the one hand, if your business owns the car
you'll have a long-term asset and may qualify for more tax deductions. On the
other hand, buying a car is a huge expense and monthly lease payments tend to
be lower than car loan payments; they may also be tax deductible.
Learn more about the benefits and drawbacks of
buying versus leasing a vehicle for your business:
Why buy a company car?
The major benefit to purchasing a car is that
it becomes a company asset that offers a number of perks for business owners:
- You can write off your gas, mileage and maintenance expenses
- Your interest payments on a car loan and depreciation costs may also qualify as eligible business expenses
- You may enjoy lower insurance and liability rates on a vehicle owned by your business
The big con for many business owners is that
buying a car is a major expense - one that may require you to finance a
depreciating asset. You will, however, maintain the residual value on your
investment as you pay it off, and once you own the car you can use it for as
long as it can do its job.
If you decide not to buy a vehicle but choose
to use a personal vehicle for business, you may also be eligible for itemised
deductions come tax time. Be sure to check with your country's small business
tax rules and regulations to confirm which vehicle-related expenses you may be
able to write off.
The pros and cons of leasing
For many small business owners, leasing a company car is the more
attractive option. Typically, it comes down to cost and cash flow. When you
lease a vehicle you won't have to come up with a down payment or collateral -and
monthly lease payments tend to be lower than car payments.
The flip side, however, is that leasing tends
to cost more in the end - and those affordable monthly payments won't add up to
an asset for your business. Another point to keep in mind is your insurance
requirements may be different and amount to higher fees.
Also be aware of the maximum number of miles
stipulated in your lease agreement - if you exceed the limit it can also mean
additional fees at the end of your payment term.
If you'll be putting a lot of miles on a car,
leasing allows you to upgrade to a new car on a regular basis - and doing so
may allow you to dodge costly repairs on an aging vehicle.
As a final note on the "plus" side, just like
business owners who purchase their company vehicle, those who lease can write
off some of their business-related car expenses.
Final considerations
Before you commit to buying or leasing a
company vehicle, do a cost-benefit analysis. Take note of the car's total cost
over the car loan or lease term including:
- Monthly payments, including interest
- Anticipated mileage
- Maintenance, fuel, insurance, parking and other related costs
- The value of the car at the end of the lease vs. the ownership period.
Talk to your accountant about which expenses
you can claim on your income tax, whether you choose to lease or buy.
At the same time you may want to seek advice
on how to track your company car costs accurately and efficiently. Keeping good
records is a must to make sure you don't miss any eligible write offs for your
company car - and so everything is in order if you are ever called for an audit.
AV Chartered Accountants - Committed to Your Business Success
Two convenient locations: