Vehicle write-offs?

[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!!

[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]

sorry, i missed reading your last post and just posted my question

[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?

[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