According to Chartered Accountant Rory Ring of Ring Chartered Accountants in Toronto, there are benefits to both, as well as some tax considerations that may help you meet your overhead and save taxes. He offers these tips.
New Car – Even though a new car will cost more, now might be a good time to buy one. This is due to low (sometimes even zero) interest rates, as well as discounts, warranties and extended warranties, and low-cost service plans from manufacturers and dealers. However, you will also pay GST, and your new car will depreciate more, especially in the first year. Use your money wisely – finance at zero per cent and pay off your higher interest debt first.
Used Car – This brings certain risks, including maintenance and repair costs as well as the possibility of being difficult to sell. On the upside, you do not pay GST as long as the seller does not pay GST. (If you purchase from a dealer, you will pay GST.)
Tax Aspects – Whether it’s a new or used car, you can minimize taxes if you use the car for business travel by:
Writing off either the full balance of the car, or the tax depreciation amount can be pro-rated by the amount of business travel in each year. The rate is set at 30 per cent per annum.
Deducting half of the maximum depreciation in the first year. By buying toward the latter part of the year or even in December, you can take advantage of the maximum depreciation without paying the extra financing costs.
Paying attention to the cost of the car. You can only claim depreciation up to a value of $30,000 plus taxes. If the car costs more than $30,000, you can only deduct the first $30,000.
Being eligible for GST refunds – If you are registered for GST as either an individual or small business owner, you will be refunded the GST paid when you purchased your new car. Employees travelling as part of their job can claim a GST rebate on the tax depreciation amount.
Being aware of the standby charge – If you finance a car, you can write off the interest up to a prescribed amount. As a corporate small business owner or employee, if you have a company car that you also use for personal purposes, you could pay a standby charge of up to 24 per cent per year, based on the cost of the car. Over time, this charge can sometimes exceed the value of the car. In this case, you will save taxes by selling the car back to the employee being charged.
Claiming the business use of your car on your tax return, as well as the depreciation interest cost and the business portion of the operating expenses.
Charging expenses back to your employer on a kilometre basis provided the employer allows this.
Inst. of Chartered Accountants——
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