Leasing vs. Financing a Business Vehicle: Tax, CCA, and Electric Vehicles

Choosing between leasing and financing a business vehicle can be a challenging decision for entrepreneurs and small business owners. With tax implications, Capital Cost Allowance (CCA), and the growing popularity of electric vehicles to consider, it’s essential to understand the different aspects involved. MiAccounting, a full-service accounting firm, is here to help you navigate this complex decision. In this article, we will discuss the pros and cons of leasing and financing a business vehicle, delve deeper into Capital Cost Allowance, explore electric vehicles and their CCA rates in Canada, and reveal the better option for your business.

Pros of Leasing a Business Vehicle:

1. Lower Monthly Payments: Leasing generally results in lower monthly payments compared to financing, which can be beneficial for cash flow management.
2. Flexibility: Leasing allows you to switch vehicles every few years, keeping your business up-to-date with the latest models and technologies.
3. Tax Deductions: Lease payments are generally tax-deductible as a business expense, subject to certain limitations.

Cons of Leasing a Business Vehicle:

1. No Ownership: At the end of the lease term, you do not own the vehicle, meaning you will have to lease a new one or purchase the vehicle at its residual value.
2. Mileage Restrictions: Lease agreements usually come with mileage limitations, and exceeding these limits can result in additional fees.
3. Potential for Additional Costs: Lease agreements may also include charges for excess wear and tear or early termination fees.

Why Financing, Especially for Electric Vehicles, May Be the Better Choice:

Financing a business vehicle, particularly an electric one, offers several benefits over leasing, including:

1. Ownership: Financing allows you to own the vehicle once the loan is paid off, giving you the flexibility to sell or trade-in the vehicle later.
2. No Mileage Restrictions: Financing typically does not come with mileage restrictions, providing more freedom for businesses with extensive travel needs.
3. Capital Cost Allowance: Financing enables businesses to claim CCA, which can lead to significant tax savings. For electric vehicles, the CCA rates are generally higher compared to traditional gas-powered vehicles. In Canada, electric vehicles (EVs) and eligible zero-emission vehicles are part of CCA Class 54, with a rate of 40% (on a declining balance basis). On the other hand, the CCA rate for traditional gas-powered vehicles in Class 10 and Class 10.1 is 30% (on a declining balance basis).
4. Environmental and Financial Benefits: Financing electric vehicles not only promotes sustainable practices but also provides long-term cost savings due to reduced fuel and maintenance expenses. As electric vehicles become more mainstream, their resale value is also expected to improve over time.

At MiAccounting, our team of skilled accounting professionals is dedicated to helping you make the best decision for your business. We will assess your business’s financial situation, tax implications, and growth objectives while considering the benefits of electric vehicles and their associated CCA rates. Our comprehensive accounting services include tax planning, bookkeeping, financial statement preparation, and more, allowing you to focus on your business growth while we manage the financial complexities.

Considering the pros and cons of leasing and financing a business vehicle, financing, especially for electric vehicles, appears to be the better choice for most businesses. With benefits such as ownership, no mileage restrictions, and the opportunity to claim CCA, financing offers long-term advantages. Contact MiAccounting today to schedule a consultation and learn more about our full range of accounting services. Let us help drive your business towards success.