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Before you put pen to paper and sign off on a new car and car loan, make sure you know how buying a new car will affect your taxes in Canada. In some instances, you may be able to write off the cost of some of the purchase, or you may even be able to use buying a vehicle to help lower your tax bill. There are a surprising number of perks associated with buying a new car beyond just having a new set of wheels.
Leasing Your Business Vehicle
Perhaps you need a new vehicle for business but you don’t need to buy it outright. In this instance you may want to consider leasing a vehicle for your business. With a business lease you can deduct up to $800 per month on top of HST (if the lease is less the amount you can deduct will slide with it). This does add up nicely though for lowering your business taxes.
Buying A Vehicle and Taxes
In Canada buying either a new or used vehicle may help you lower your tax bill. Just keep in mind the purchase price needs to be at or below $30,000. If you buy a vehicle that costs more it is considered a luxury vehicle in Canada and you won’t be able to take advantage of these tax saving measures.
As long as the cost of the new or used vehicle is below the $30,000 threshold you can claim 15% of the cost of your vehicle the first year, and then 30% of the lowering balance every year up until you have paid off the entire vehicle.
It is important to point out that this works for the purchase of both new and used vehicles. So, if you do have your eyes on a luxury vehicle but it costs more than $30,000 new, you may want to consider a slightly used option. This might help lower the price point down to under $30,000. This way, you can drive the vehicle you’re interested in, claim the tax credits, and save some money on the purchase as well.
Buying A Vehicle Over $30,000
Perhaps the perfect car for you (or the vehicle you’ve had your eyes on) costs more than $30,000. In this instance you will not be able to take advantage of the tax claiming option. So, if your vehicle is right on the edge, try to find a way to knock a bit off the price to sneak it under that $30,000 mark. It’ll save you a sizable amount over the course of paying off your vehicle. However, if you do end up purchasing a vehicle that costs more than $30,000 it doesn’t mean you will completely miss out on money saving opportunities.
If you are paying for the vehicle via a car loan you will be able to claim the interest paid on the loan, up to $300 a month.
Save Money For Years To Come
There are a number of benefits behind buying a new vehicle. Yes, you’ll secure yourself a new set of wheels, but you may be able to cut down on your taxes for years to come. While purchases above $30,000 will only allow you to claim your loan interest, the purchase of vehicles under $30,000 will give you a number of options. So keep all of this in mind prior to going out and buying a new or used vehicle. And always, if you have major financial questions regarding what kind of vehicle you can afford and what sort of payment you should be making, talk to your financial institution or financial consultant for further insights.