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| Why
lease a vehicle? |
| Leasing
Overview |
| Leasing
is a different form of vehicle financing when
compared to conventional purchase financing.
Leasing provides the use of a vehicle over
shorter timelines than a conventional finance,
and usually at a considerably lower cost per
month. The added benefit of shorter term leasing
(less than 3 years) is lower maintenance costs.
The newer the vehicle, the less chance you
will have for breakdown and costly repairs.
The best part of a vehicle’s life is
the first 3 years or 60,000 Kilometers. This
is where most manufacturers’ warranties
end. They are all built to break! |
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| Tax
Deferral |
| With
leasing, the lessee or (buyer) acquires the
vehicle essentially tax-free with taxes collected
on the monthly lease payment over the term
of the lease. With a loan, all taxes are paid
in full up front with interest calculated
on this amount including the tax. With leasing,
unless you elect to purchase the vehicle on
lease expiry, you never pay taxes on the residual
value, therefore reducing the tax you pay. |
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| Lower
Payments |
| Leases
are based on the anticipated use of the vehicle
over a given time period. After the anticipated
time, the vehicle is depreciated to a value
which reflects the use. This value is called:
Residual, buyout, etc. In a conventional auto
loan, the vehicle would be at a zero balance.
This adds higher monthly costs, by reducing
the entire balance. This can help up to reduce
monthly costs by up to 30% lower than loan
payments. This gives you the choice of leasing
a much more expensive car for the same payment
as a traditional loan. |
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| The
two types of leasing programs |
| Basically
there are two types of leases; the closed
end "walk away" lease and the open
end or finance lease. Both have distinct characteristics,
benefits and advantages. The differences include
the allowable kilometer use and whether the
lessee participates in the profit or loss
on the sale of the vehicle at the end of the
lease. It is important that you understand
the differences between these two types of
leases before you enter into a lease contract. |
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| Tax
Savings |
| In
Canada the limit on deductible leasing costs
is $800.00 per month plus applicable federal
and provincial sales taxes for leases entered
into after Y2K. A separate restriction pro-rates
deductible lease costs where the value of
the vehicle exceeds the aforementioned capital
cost ceiling. If you are making personal use
of a vehicle acquired for business purposes
the taxable benefit relating to this personal
portion is $ .16 per kilometer. Revenue Canada
reviews rates and limits annually, and announces
any changes prior to the end of the calendar
year. It is not uncommon to make an up-front,
lump-sum payment under the lease to lower
the monthly payments, end of term buy-out,
or both. Revenue Canada will normally consider
such payment to be part of the normal lease
charge in the year paid and therefore may
be subject to a limited expense write-off
divided over the full term of the lease. |
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