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Vehicle write-offs? - Click HERE for Original Thread

Shaolin
About a month ago this girl i work with told me to go lease a new ride because I was saying how I'm thinkin of gettin a new car..

She was telling me about leasing a vehicle, and after the first year of your lease you can write-off 90% of the vehicle payments or somethin like that?

I went out for lunch with my old boss who is a consultant now for Petro Canada and she was telling me that she's going to lease a new 330 in a couple of months because of the same deal..

I don't exactly remember their explanation, only parts i caught was "lease", "90%+", "write-off".

can anyone explain?
rage2
If you run your own business, and you use the vehicle for your business, you can "write off" the lease payments as a business expense. What that means is lets say your business generates $20,000 of profit every year. So you're liable to pay taxes on that $20,000. Let's say the tax rate is 20%, so you would take home $16,000, and paid $4000 in taxes.

If you lease a vehicle, let's say $6000 of payments per year, that's a business expense, so your profit becomes $14,000 a year, after 20% tax, you take home $11,200. But because you still "spent" $6000, you really took home $17,200... in effect, you paid $1200 less tax ($2800 vs $4000).

Of course there are rules, and limits as to how much you can write off. Best to check with your accountant on that. You can't just have a dummy company that loses money for several years just to write off your vehicles (OK you can, you just have to find a creative accountant). Revenue Canada doesn't like that too much, and getting audited sucks big time.
ThE tV 8 mE
wow..well explained!! :thumbsup:
Shaolin
ahh i see... thanx..
rage2
In the above example, if your "dummy company" doesn't make any income, and you make $40,000 in your day to day job, your company has a net loss of $6000. So instead of paying taxes on $40,000, you had a loss of $6000, so your yearly income would be $34,000. You would pay taxes on that instead of $40,000. Of course, depending on the choice of dummy company, you can write off a lot of other crap. Computers, TV's, electronics... easily juice up that $6000 to say, $20,000, in effect paying taxes on $20,000 of income, and spending $20,000 pre-tax.

Take home after taxes on $40,000 income : $27,000 (approx.), so you paid $13,000 in taxes.

Take home after taxes on $20,000 income : $16,000 (approx.), so you paid $4000 in taxes, and got to spend $20,000.

Of course, you can only do this for 2 or so years, as Revenue Canada doesn't believe that anyone would be stupid enough to run a money loser year after year after year.

The trick is to find a GOOD creative accountant that can set something up like this for you, without setting off red flags with Revenue Canada. If done right, it's not a tax scam, it's a very creative way to pay less taxes hehe.
Shaolin
what if I have a day job, and I also run a business on the side?
rage2
Originally posted by Shaolin
what if I have a day job, and I also run a business on the side?


That's what I just explained in my last post :).

Remember, always seek the advice of an accountant as to what you can and can't write off. I don't want anyone reading this to go try this, get audited, and fined like a mofu haha.

Shaolin
:rofl: sorry, i missed reading your last post and just posted my question :D
civic_ek4
Yeah, thats the way to do it. I have some friends who work on the oil patch and they make over $100,000/yr. So they set up a used car parts company and you know car parts, ppl pay cash. So they just claim all these losses each yr and get all the money they paid from their actual job. THis is tax evadence.

Audit checks comes by once in awhile but as long you take proper procedures. Tax planning and Tax evading is two different thing.
20incheyes
writing off a car is called a capital cost allowance(for cars I believe you can write off up to 30% of it's value yearly but only half that in the first year), and to be able to write off a vehicle you must also have a personal vehicle beforehand, this can even include a 81 caprice worth $500 and a 50K car for business.
rage2
Originally posted by 20incheyes
writing off a car is called a capital cost allowance(for cars I believe you can write off up to 30% of it's value yearly but only half that in the first year), and to be able to write off a vehicle you must also have a personal vehicle beforehand, this can even include a 81 caprice worth $500 and a 50K car for business.


Which is why leasing is so popular :).

Redlyne_mr2
Sooo many leases on the books where I work are numbered companies with the owners as a co-signer. Alot of people have come to realise the value associated with leasing and owning a business even if the business exists only on paper
civic_ek4
Capital cost allowance is for all assets. They do half in the first year because it wouldn't be fair if your got it at the beginning or the end and claim full yr benefits.

Leasing on the otherhand is out of your monthy expense and due to the fact that the asset is not yours, you wouldn't be able to claim any CCA on it. Because in the books it's considered as an expense to you not asset.
TrevorK
Originally posted by rage2
In the above example, if your "dummy company" doesn't make any income, and you make $40,000 in your day to day job, your company has a net loss of $6000. So instead of paying taxes on $40,000, you had a loss of $6000, so your yearly income would be $34,000. You would pay taxes on that instead of $40,000. Of course, depending on the choice of dummy company, you can write off a lot of other crap. Computers, TV's, electronics... easily juice up that $6000 to say, $20,000, in effect paying taxes on $20,000 of income, and spending $20,000 pre-tax.

Take home after taxes on $40,000 income : $27,000 (approx.), so you paid $13,000 in taxes.

Take home after taxes on $20,000 income : $16,000 (approx.), so you paid $4000 in taxes, and got to spend $20,000.

Of course, you can only do this for 2 or so years, as Revenue Canada doesn't believe that anyone would be stupid enough to run a money loser year after year after year.

The trick is to find a GOOD creative accountant that can set something up like this for you, without setting off red flags with Revenue Canada. If done right, it's not a tax scam, it's a very creative way to pay less taxes hehe.



If there is no reasonable expectation of profit than you can get shut down by Revenue Canada. How'd you like to be audited after doing this for 7 years to be told you owe taxes for the last 5?

As well, when you writeoff the vehicle/expenses you have to take into account the amount it is used for personal use. Lie on this, and they can get ya.

Talk to an accountant before you attempt anything.

rage2
Originally posted by TrevorK
If there is no reasonable expectation of profit than you can get shut down by Revenue Canada. How'd you like to be audited after doing this for 7 years to be told you owe taxes for the last 5?


Which is why I said it only works for 2 or so years. You're expected to be profitable... and even if you look profitable after 2 years, it's still beneficial to you tax wise to be able to write off business vehicles, computers, equipment, etc.

Originally posted by TrevorK
Talk to an accountant before you attempt anything.


I mentioned that in every post I made hehe. Last thing I want is anyone taking the advice to get audited.

hjr
most people get payed as an employee of a company but i know more and more folks that have a company set up that contracts themselves out for work. so their normal wages get payed to said company and they, being the owner of the company, get the money anyways, but get the benifits of having a company. There are also cons involved but its another option.

definetely talk to an accountant before anything like this is attempted.
rage2
Originally posted by hjr
most people get payed as an employee of a company but i know more and more folks that have a company set up that contracts themselves out for work. so their normal wages get payed to said company and they, being the owner of the company, get the money anyways, but get the benifits of having a company. There are also cons involved but its another option.

definetely talk to an accountant before anything like this is attempted.


hehe I know some folks that got stung by that one. The problem is that you are considered an employee (and not contractor) if you have a desk at the place of work, they provide the equipment, etc. The problem is when CCRA goes after stuff like that, they go after the employer and the employee, so you'll find that less and less companies are willing to do this for you.

civic_ek4
One of the main reasons why people incorporate their company is that they want the image and power to say they are the CEO or the president of the company. It's all about the image and status.
rage2
Originally posted by civic_ek4
One of the main reasons why people incorporate their company is that they want the image and power to say they are the CEO or the president of the company. It's all about the image and status.


wtf? :confused:

Shaolin
umm.. i call myself president of my company, and it's not incorporated? hell i can call myself whatever i want to, i'm a one man show :D

:confused:
sputnik
Uh. There is one thing missing.

How do you get the money from your income re-allocated into your private business 99.99% of us are taxed before we get our paycheque. So if you were to get a car and lease it and claim it under your dummy company you just wouldnt pay any taxes (you wouldnt if you were at zero as well). The company has to buy the car and then make the write-offs in the tax return for the business (not your personal tax return).

The fact of the matter is that you still need pre-tax money before you can write anything off.
civic_ek4
I think what i am trying to say is that most people do it not for the benefits of any advantages. (ie. tax) It is mainly for the purpose of status and image. This is base on what a study have shown. Okay....it's not only incorporated but for all companies.


Lease payment is a monthy expense, revenue-expense=income
And the money used to pay the lease is considered as an expense therefore at yr end with more expenses it SHOULD move you to a lower tax bracket.

For personal tax, if your operate a business and you operate at a loss. The loss can be used against your taxable income of your primary job to off set the amount of tax. i think this is the non-capital loss.
lockstock
Question...

A just started a business. It's a small online company. Since it is in its infancy, I don't expect to generate a significant profit for some time.

I have been told that even if my company does not make a profit, or for that matter, even suffers a loss, I am still able to write off business expenses that pertain to my work (including a vehicle).

Can anyone tell me if this is true, and if so, how long can my company fucntion without a profit before I end up in hot water? For example, what if I were to make something ridiculous like $3000 in my first year, and I wanted to write off $6000 in car expenses (lease)?

Any information you could provide would be appreciated.
Texas
Simple:

1. You need a business
2. It needs to be earning money and paying income tax
3. You will have to register it as a company vehicle and that will make it a monetary item if you go bankrupt. But I believe all associated costs can be written off as well....BUT If you use it personally...THAT is also a taxable benefit.

Some people hear "write off" and think they are Making money on the deal...you are still paying the taxes in the first place though...

You can operate for 2 years with no profit. you CAN put 10 dollars a month in your accounts though....and prove activity.
Originally posted by lockstock
Question...
Can anyone tell me if this is true, and if so, how long can my company fucntion without a profit before I end up in hot water? For example, what if I were to make something ridiculous like $3000 in my first year, and I wanted to write off $6000 in car expenses (lease)?Any information you could provide would be appreciated.


Then I wish you luck.

legendboy
I thought the goverment only allowed $850 per month as a "write downable" portion :dunno:
lockstock
Still not sure if I understand.

So, if my business is not bringing in a great profit as yet (considering I just started), am I still eligible for writing off a vehicle under the company.

If so, what sort of leasing price should I be looking at, and how much of it will I be able to "write off".

Also, in respect to other business expenses such as computers, cell phone bills, etc. Can these be written off? If so, how much of it?

Sorry for all the questions, I'm just really in the dark on this.
B18C
Originally posted by lockstock
Still not sure if I understand.

So, if my business is not bringing in a great profit as yet (considering I just started), am I still eligible for writing off a vehicle under the company.

If so, what sort of leasing price should I be looking at, and how much of it will I be able to "write off".

Also, in respect to other business expenses such as computers, cell phone bills, etc. Can these be written off? If so, how much of it?

Sorry for all the questions, I'm just really in the dark on this.



You should probably go talk to an accountant about it.

civic_ek4
Any assets that you don't capitalize could be written off in accordance with the tax procedure. The accounting and tax procedure are two different things. Example: small tools under $200 can be written off within the first yr and take no UCC on it.



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