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Is it better to buy or lease a vehicle for a commission earner?

Posted 16 November 2015 under Tax Questions



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John says:
12 November 2015 at 10:29

I am a real estate agent and require a vehicle to travel to appointments, etc. Would it be better to buy a vehicle (new or used) or lease a vehicle? My understanding is there are greater tax benefits in leasing (claim 100%) while buying a vehicle there is only a portion of the vehicle and interest you can claim. Is this correct? Which would you recommend?

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TaxTimTaxTim says:
13 November 2015 at 7:40

When you say lease, do you mean a normal purchase over a 5 year period or so or actually leasing on a month to month with no ownership possibility at the end?


John says:
13 November 2015 at 9:25

Hi Tim,

Thanks for the reply.

I mean an actual lease agreement with either the company leasing the car or as a finance option from the bank. So we could lease the car over, say 2 years and simply give the car back after that period or possibly have the option to buy. So I understand we are not paying off an asset and will have zero to show for it after the two years but if there are larger tax benefits in opting for this model then it still may make more sense to lease as opposed to buying a depreciating asset? The monthly repayments may be slightly lower and we could invest the money elsewhere? Also maintenance benefits, etc. I was also wondering if the finance options provided by some new car companies that offer 3 year deals with guaranteed buy back would also fall under the same category as a lease agreement in terms of tax benefits?

Thanks again for all your help!


TaxTimTaxTim says:
15 November 2015 at 10:16

It would all depend on the different values of the cars. Essentially though the tax treatment would be as follows:

If you lease the car - as in a normal hire purchase agreement then you are looking at being able to deduct the interest payment and all related expenses such as insurance, fuel, license costs etc and then depreciate the value of the car over 5 years. You would need to keep a logbook to make sure you can claim the deduction.

A leased car would allow you to deduct the same other expenses, but then the actual value of the lease (rental) so not the interest or depreciation. Again you would need to keep a logbook.


John says:
16 November 2015 at 9:29

Thanks for this.

So, if I am understanding correctly, there wouldn't be too much difference between the two in terms of tax deductions at the end of the day? Would essentially be recovering full amounts over the full period of the agreements? Which would you recommend?


TaxTimTaxTim says:
16 November 2015 at 13:57

If you are going to "rent" the car then those payments would be the only deductibles along with the costs of running the car. However it would depend on the value of the vehicle because the depreciation over 5 years and the interest may be more or less. However to own an asset would always be better than paying rental on one where there is no future ownership.


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