Frequently Asked Questions

Meet Brad...he has an aversion to suits and ties. He is a cybersalesman who understands your paranoias about leasing a new vehicle. He is bound to the truth, and determined to give you every stitch of information you need to make an educated, fiscally sound decision. He is the guru of auto leasing. He is your friend and your ally. You would love him to marry your daughter and will want him as a golf partner...he counts every stroke! He's your buddy, your pal. Brad should wear a cape & mask because he is the defender of all those weary souls wading their way through the world of auto leasing....got a question...

The following questions have been answered, in detail on this page. Click the question that interests you to go directly to the question, or scroll down and read them all.

WHAT IS THE DIFFERENCE BETWEEN AN "OPEN END" LEASE AND A "CLOSED END" LEASE...AND WHICH IS BETTER?

WHAT IS THE MAXIMUM WRITE OFF FOR TAXES AND HOW MUCH CAN I CLAIM?

IS LEASING MORE EXPENSIVE THAN BUYING?

ARE THERE ANY HIDDEN COSTS..?

SO, WHAT IS THE DIFFERENCE BETWEEN AN "OPEN END" LEASE AND A "CLOSED END" LEASE...AND WHICH IS BETTER?

GREAT QUESTION, TOUGH ANSWER...An "open end" lease is a "NO KILOMETER RESTRICTION" lease. In other words, you are not going to be penalized for having an excessive amount of kilometers on the vehicle's odometer at the expiry of the lease....BUT...
you are guaranteeing the residual value (buy-out amount) during the term of the lease, and more importantly at the expiry of the lease.

For example, if you have an "open end" lease and your residual value on the lease document is $10,000, you are guaranteeing that the VEHICLE will be worth at least $10,000 at the end of the lease.

Now you have three different options to choose from at all times when you lease a vehicle in an "open end" lease

1. Buy it.
2. If you decide not to purchase the vehicle, and the vehicle is only worth $9,000 at the end of the lease, then you would have to pay the difference between the residual value ($10,000) and the value of the vehicle ($9,000). In this particular instance, you would have to pay $1,000 + GST and PST ($1140).
3. If you decide not to purchase the vehicle, and the vehicle is worth more, let's say $12,000, the leasing company would cut you a cheque for $2,000 or you could use the $2,000 as a cost reduction on a new lease.
Okay, so now you've got the idea--let's move on to the "closed end" lease and it's advantages and limitations...

A "closed end" lease is quite different. It is a "KILOMETER RESTRICTED" lease with an "OPTIONAL BUYOUT" at the lease expiry. The kilometer restriction can vary, with the industry norm being anywhere from 15,000 kms. to 30,000 kms per year. If you drive in excess of this amount over the term of the lease, (and you do not wish to use your option to purchase), you pay a penalty. The penalty amount varies. Again the industry norm is anywhere from 5 cents to 15 cents per kilometer (BE CAREFUL) that you have driven over your allowance.

For example, if you have a 48 month lease (4 year) with a 20,000 kms per year restriction, you may put 80,000 kms on the odometer without paying a penalty. If at the end of the lease you have 100,000 kms on the odometer, and the kilometer restriction penalty is $.08 per kilometer, you would pay $1600 (20,000 X $.08) plus GST & PST. You will also be responsible for "DAMAGE TO THE VEHICLE ABOVE AND BEYOND NORMAL WEAR & TEAR."
This includes the following: cigarette burns, tears, stains, dents, large scratches, etc. as well as brake pads (if they are less than 20% remaining), brake rotors if they are worn, windshield wiper blades and any non-warranteed part that is broken or not working...BE CAREFUL--IT CAN ADD UP!

If you decide to purchase the vehicle at the end of the "closed end" lease, and the residual value is $10,000, then you pay no penalty whatsoever and you purchase the vehicle for $10,000 + GST & PST

Now, as far as which lease is better...

...it depends on several factors. Both have the same taxable benefits. If you are putting money down as a cost reduction, the "open end" lease is better. The buy-outs are generally lower. Because of this, you are more apt to get your equity down payment back at the end of the lease. For example, you put $3,000 down at the start of the lease. Your buyout is $10,000. The vehicle is worth $13,000 and you decide not to buy it out. The leasing company would cut you a cheque for your equity--in this case $3,000. If it was a "closed end" lease and the buy-out was $12,000, the leasing company would generally take the vehicle back and cut you a cheque for $1,000 (less any kilometer or damage penalties)

The "open end" lease is less penalty oriented, BUT BE CAREFUL of the "HIGH BUY-OUT" "open end" lease...

REMEMBER YOU ARE GUARANTEEING THAT RESIDUAL VALUE
In a nutshell, the "closed end" lease is better for someone who treats their vehicles well and keeps them in good condition, does not do an excessive amount of driving, wants lower payments (this varies) and does not intend to build equity or purchase the vehicle at the expiry of the lease.

WHAT IS THE MAXIMUM WRITE OFF FOR TAXES AND HOW MUCH CAN I CLAIM?

The maximum write off is $800.00 + PST + GST(GST is recoverable in many cases with the exception of certain professions, for instance, doctors, stock brokers and insurance agents because they are exempt from collecting GST).

The amount you claim depends on what you are using the vehicle for (vehicle use) and how often you use it for business. Many people keep a record of use in order to prove to the tax man that the usage amount is valid. Most people estimate. Your accountant is the best person to talk to regarding this as it varies vehicle to vehicle and person to person.

IS LEASING MORE EXPENSIVE THAN BUYING?

There are pros and cons for both. The first thing you should remember is that a vehicle is a depreciating asset (it will, in most cases, be worth less tomorrow than it is today). Bear this in mind as I explain!

There are 3 ways to acquire a vehicle

1. Cash purchase (no finance)
2. Cash purchase (finance)
3. Lease
I'll explain the differences between each.

1. Cash purchase (no finance) - You will pay fewer total dollars if you purchase a vehicle outright (depending on the deal you make). But you will pay "all" of the tax (GST & PST) upfront, so a $20,000 vehicle will cost you $22,800 after taxes, plus any documentation fees that the dealer might charge. ($50-$500) BE CAREFUL!

2. Cash purchase (finance) - If you purchase the same vehicle over a 48 month finance period the $20,000 vehicle will cost you approximately $550 per month X 48 months = $26,400 based on 7.75% interest (this includes PST & GST). The bank will generally want a down payment of $2,000 to $5,000 depending on your credit and depending on the vehicle.

3. Lease - An example of a lease on a $20,000 vehicle would be 0 down (first month & security deposit), 48 months @ $379.00 per month (taxes included) with a buy-out of $8,000 which totals $379 X 48 =$18,192 + $9,120 (8,000 + PST & GST) = $27,312.00

The conclusion...if you go full term on the lease and buy the vehicle at the expiry, you are paying more than a purchase or a finance deal. However, if you do not buy the vehicle at expiry, the vehicle has cost you $18,192 less whatever equity you might have, example $8,000 buyout, but the car is worth $10,000. You have $2,000 equity. Therefore the vehicle cost you $16,192 for 4 years or $337.33 per month.
Using the same $20,000 on a finance deal, here's how the numbers work. You pay $550 per month and you own the vehicle at the end of the lease. Now you sell it for $10,000. The vehicle cost over 4 years was $26,400 less $10,000 = $16,400 / 48 months = $341.67. Why is it more? Because you already paid the GST & PST when you purchased the car!!! You never paid that GST & PST on the lease buy-out because you sold your vehicle at the end of the lease.

How about the cash purchase ... same scenario...$20,000 + tax = $22,800. No payments, in 4 years you sell the car for $10,000. $22,800 less $10,000 = $12,800 / 48 months = $266.67...by far the least amount paid. The problem is twofold.

1. Who has $22,800 lying around to buy a car for cash--for those who do--good for you!
2. How much money could you make with that $22,800 if you invested it wisely?

PROS AND CONS - SO WHY LEASE?

Because you can have the vehicle you want with a minimum amount of start up money, your payment is lower and generally easier to tolerate on a monthly basis and you only pay for a portion of the vehicle & capitol cost & taxes. You get to drive a new vehicle every 3 or 4 years, which is nice. Although you can write off a purchase, the tax man still favours leasing over purchase...ask any accountant.

ARE THERE ANY HIDDEN COSTS..?

BE CAREFUL, often times you will be quoted what appears to be a very competitive lease rate only to find out that your start up costs are higher because certain fees were not disclosed to you. Examples (doc. fees, lease fees, administration fees, freight & PDI, newshoe fees, etc.) Always ask, "What will I be cutting you a cheque for when I pick the vehicle up"? and GET THAT NUMBER IN WRITING.