Should You Own or Lease Your Company Vehicle?

November 30, 2015

 

A key attraction of leasing a vehicle over owning it is the lower monthly costs, compared to a loan, as well as the ability to upgrade the vehicle without the capital cost of buying a new model.

A key attraction of buying a vehicle over leasing it is outright ownership, particularly if you don't consider upgrading your vehicle every three years or so. It may also be preferable if you travel a lot of kilometres each year.

While you have a lower monthly payment with leasing, compared to buying a vehicle, as well as a smaller deposit, you are charged extra at the end of the lease for anything that decreases the resale value of the car. You may have to fix any abnormal wear and tear. If the petrol gauge surpasses the limit in your lease you will have to pay extra. You are also locked into the lease for the specified term and breaking the lease early will cost you the remainder of the lease plus termination fees.

However, leasing is the preferred option for a number of businesses because: 

  • Lease vehicles are fully tax deductible as an operating expense (but are eligible for personal usage and fringe-benefit deductions)

  • Maintenance and insurance costs can often be covered in the monthly rental

  • A fixed monthly cost of rental can be easier to budget within the business

  • An operating lease means your vehicle will be recorded "off the balance sheet" which improves your business's gearing ratio

  • You have the option of upgrading your vehicle at the end of the lease term (or purchasing it outright for the residual cost in the case of a finance lease)

What may be the biggest factor in deciding to buy or lease is the current rate of car depreciation in New Zealand. It's now not uncommon for a vehicle to lose half its market value within three years, so for many businesses the option of putting capital towards an asset that depreciates to this extent makes little sense.

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