Should I Buy or Should I Lease My Next Vehicle?

As a business owner, I have debated this question many times over the years. I have both leased and purchased, and I like to get a new vehicle every 3 or 4 years... whether I really need it or not.

My advice about making this decision is: speak with your accountant.

There are many ways to handle both the usage and the HST (Nova Scotia) you can claim. Factors, such as whether you are a Sole Proprietor or Corporation, will impact this decision.

• Purchased vehicles become assets and part of your net worth.
• Lease payments become expenses which can be written off using the CRA rules.

Lease payments are generally lower than your payments if you buy, which makes them attractive. Buying might have higher payments but you are making payments on an asset that eventually will be paid off, meaning you will be debt free until you require a new vehicle.

Ideally you don't want to take out a loan to pay off a vehicle that is not expected to last at least as long as the term of the loan. Dealerships may offer longer terms for repayment to make you think the cost is reasonable (smaller payments), however after 5-6 years, the warranty is gone and problems start. A vehicle will depreciate if it's an asset, and generally by 30% in the first year.

Leases have mileage limitations so, based on your future use of the vehicle, this must be considered. There are also penalties if you wish to get out of a lease sooner that its term. Sometimes the lease rates are higher than purchase rates.

Here is a calculator from CRA which will help you compare the costs.

File HST Returns even for Zero Sales

After you register for an HST number when setting up your business, you are required by law to send in your remittances even if you have zero sales.

When you start a business, unless you are expecting sales right away, or under $30,000 in sales for the first year, you do not need to register your business to collect HST. When you do decide to register, here's a story you should know about.

A recent client of mine had registered their business two years ago with the intention of proactively looking for business. This client had not had any sales in those two years. However, when they called CRA to register for HST, the start date was backdated instead of beginning when he called. We are uncertain why. This client was then responsible to file returns for the previous reporting periods. Because they didn't know this, CRA assessed him for what they believe they owed them. They received a bill in the mail they were expected to pay. When they finally realized they had to file all the returns backdated, they filed all of the zero returns so they could claim HST on expenses they had incurred for the start up. Because they hadn't filed previously, CRA took their credit and applied it to the outstanding amount. When they called asking why they owed money on a zero sales return, CRA said it was because of the penalties for not filing his returns!

Lessons learned?

1. Always file your HST returns, even if there are no sales!
2. When calling to set up an HST account number, ensure they date the paperwork for the date you are applying. Keep an eye on the mail and check for confirmation of the reports due.
3. Although it does look professional when you charge HST, unless you are over the $30,000 mark in revenues there is no point in registering before you are ready unless you want to claim HST for expenses.

Just Because You Know How to Do Your Own Bookkeeping...

Are you still insisting that you do your own bookkeeping because you know how?

It is imperative that you maintain a current set of books. Canada Revenue Agency can audit you at any time with little notice. If you are not keeping up, think about the things happening around you that are causing you such unnecessary stress.

CRA is likely hounding you because you haven't filed last year’s taxes or, worse, HST and payroll remittances. They have likely decided to send you an assessment of what they feel you owe and it is due just like any other bill.

Your cash flow is suffering and now you need to take a loan out to cover expenses until your backlog of receivables and payables are cleared up. But, wait, you don't have any statements to show the lender. Your accountant is telling you to hire a bookkeeper if you can't keep up... in the end causing much stress and money that didn't have to be spent trying to get things caught up.

You haven't reconciled your bank accounts in months. Oopsie, was that an NSF charge on the last statement?

Your vendor won't ship your orders because you haven't paid for the last few. You swear you did but can't prove it.

Your clients are loving their extended credit terms! (Good for them, not you.)

Does this sound familiar? Don't try to be the expert in everything. Very few people can handle everything in a timely fashion and they are normally those workaholics we never want to be.

Just because you know how to do your own bookkeeping, doesn't mean you should.