263394-lease.gif

 

Just to explain the above chart, it's a comparison of leasing and financing over 3 years. The assumptions are that you have $10K in cash to start off. If you do a straight purchase finance with a $10K downpayment, it will be $9K more expensive than if you leased the car with no downpayment, invested the $10K and wrote off the lease as a business deduction.

You'll see that the assumptions are quite conservative for the investment, capital gains and tax write-offs. It can be argued that a G35C will fetch more than $25K in 3 years, but I'm inclined to believe this is a fair average.

 

The chart confirms what I said about 10 posts ago...

Only financial reason where leasing is more advantageous than financing is ONLY if you are able to deduct the lease payments, and most people do not own their own profitable business to do so.

 

Yep. I've never said the G35 was a good lease candidate (residual too low, no sub-vented lease rate), just wanted to run some sample numbers for the forum. A couple of points to note:

You don't have to own your own business to write off a lease. You can also be a commissioned salesperson, or be a self-employed contractor.

The numbers in the chart are very conservative. For instance, an 8% rate of return is an average for investments that are buy-and-hold. In my experience, hands-on investments yield 12-15% at the very least. Also, a 25% capital gains tax means your gains are taxed at the highest possible bracket. If you're not making close to 6 figures, your capital gains tax will be around 20%. These two factors alone will yield a total lease cost less than a purchase finance.

The point is that if you lock up your cash in a fixed depreciating asset, you never get a chance to experience compound growth of your investment.

Compare the above numbers to BMW, whose residuals hover around the 60% mark and sub-vented lease rates are around 3-4%. These are great candidates to lease.

 

Hey lee,
Good to hear from you. I met you and John at one of the meets!

Your posts on leasing were bang on. Although I bought the G outright, I agree with you that leasing is better for high-end cars -- as long as you structure the lease to increase the residual/ buyout and lower the payments to the cap threshold (that way you maximize the write-off, and the assumption is after ~36 months you walk away). If you don't structure the lease this way, the problem with high-end cars is that you get hit with say a grand or more a month and can't utilize the full write-off....
(but all that only applies if you own your business or use your car for business).

Anyway,like I said I think your comments were excellent... and with that new Porsche 911 I saw you driving, I figure you know what you're talking about re: financing high-end cars.

One question: You said in your 1st post that you can't deduct depreciation.... I thought you could deduct depreciation as a capital cost allowance against taxable income? I own my own business and I've leased vehicles where I write off the lease amount up to the cap, but I've also written off the depreciation on purchased vehicles based on the CCRA schedule 8 tables? (or my accountant has...) He told me that it ends up about the same as far as the write-off is concerned... with depreciation you get a bigger write-off in the first year, smaller in the second, smaller still in the third, etc. whereas in the leasing scenario you get a uniform write-off every month.

That said, I'm no accountant so I could be wrong... but I'm pretty certain that I've gotten the maximum write-offs on the depreciation of my purchased vehicles in the years that I've owned them.
(but I might have completely misunderstood my accountant... that wouldn't surprise me!)

Anyway, good to hear from you again Lee...say Hi to John!


2004 G35C 6MT + Nav, Silverstone

 

Hey meta, good to hear from you!

I checked and you are right, you can write off depreciation. I've never done it before, since I always prefer working capital over a fixed depreciating asset.

Hope you're enjoying that G35! John and I will try to drop by one of the meets one of these days.