Frequently Asked Questions

What is a Lease ?

Technically, a lease is a legal agreement between two parties that specifies the terms and conditions for the rental of property, which, in this case is a car. In general, the agreement is not between you and the car dealer, rather it is between you and a leasing company. In other words, the car is actually sold to the leasing company who, in turn, rents the car to you.

What are the advantages?

Automobile leasing can be a very attractive alternative to buying for many people. So, what are the potential benefits of leasing when compared to conventional new car purchase loans?

Lower Monthly Payments

Because you're only paying for the portion of the car or truck that you actually use, your monthly payments are 30%-60% lower than for a purchase loan of the same term.

More Car, More Often

Since your monthly payments are lower, you'll be able to get more car for the same money and drive a brand new vehicle every two to four years, depending on the term length of your leases.

Fewer Maintenance Headaches

Most people like to lease for a term length that coincides with the length, in months, of the manufacturer's warranty coverage so that if something major goes wrong with their car, it's always covered.

Lower Upfront Cash Outlay

Many leases require little or no down payment, which makes getting into a new car more affordable and frees up your cash for other things. However, you can choose to make a down payment to lower your monthly payment amount.

Lower Tax Bite

In Canada, you don't pay sales tax on the entire value of a vehicle when you lease. You're only taxed on the portion of the value that you use during your lease. The tax is spread out and paid along with your monthly lease payment.

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What are the different types of Leases?

There are two types of automotive leases available today, the "closed-end lease" and the "open-end lease".

Closed-End Lease:

In the closed-end lease the residual value of the car at the end of the lease is determined before the lease is signed. At the end of the lease period, the lessee has the option to purchase the car for this price or, the vehicle may simply be turned in to the dealer and the the lessee "walks away". The lessee is responsible for the total kilometers on the vehicle in excess of the total kilometer allowance and the mechanical and physical condition of the vehicle beyond normal wear and tear.

Open-End Lease:

The open-end lease program is very flexible and provides for a residual value guarantee by the lessee based on the projected wholesale value of the vehicle at lease end, reducing the concern of kilometer limitations on the lease. On lease expiry, or before, depending on the buyout schedule, the lessee may purchase the vehicle for the stated buyout amount, or have the lessor sell the vehicle on the lessees behalf with the lessee then paying the difference if there is a shortage, or rolling the equity, if that's the case, into a new vehicle.

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What are the Tax Rules?

Effective January 1, 2001 the Federal Government increased the automobile expense deduction limits and the prescribed rates for determining taxable benefits rates on automobile operating expenses. Please read the information below for a summary of the tax rules for automobiles, and the changes for 2001.

AUTOMOBILES OWNED OR LEASED BY EMPLOYEES OR SELF- EMPLOYED INDIVIDUALS

LUXURY AUTOMOBILE LIMITS ON FIXED EXPENSES

An employee or a self-employed individual who purchases or leases a passenger motor vehicle for use in carrying on their business or duties of employment may claim certain tax deductions. The individual can claim either capital cost allowance (CCA) and related interest expense or lease payments. Certain deductions for passenger vehicles are limited in order to remove any tax benefit or preference to owners of expensive automobiles.

For purchased passenger vehicles, the maximum cost for CCA purposes has been increased from $27,000 to $30,000 plus non-refunded sales taxes (i.e. provincial sales tax, and GST not credited) on $30,000. Annual CCA is 30% on a declining balance basis, with only half of the permitted amount being deductible in the year of acquisition. Deductible interest paid on money borrowed to buy a passenger vehicle is increased from $250 per month to $300 per month.

For leased passenger vehicles, deduction of the monthly lease payment has been increased from $700 to 800 plus un-refunded sales taxes on $800. The deductible amount may be less if the MSLP (manufacturers suggested list price) of the vehicle is in excess of $30,000 excluding applicable taxes.

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