Leasing verses buying

[grassfarmer]

I am interesting in hearing what everyone's opinion on leasing is.

I was in at a dealer and just for kicks looking at a Morris Drill. Although I was clear to them that any deal was going to be a cash deal, he was promoting the lease option. No doubt he gets an extra cut from the leasing company on the sale.

Besides all of that, I have always been of the mindset that leasing is only a form of financing and most of the time there is little to no benefit. This is also the message my accountant has always given me.

From a tax perspective, there really is no difference, especially on something that in the class 10 group. We went through the partnership then incorporation route about 14 years ago and therefore we are a corporation. With a 13% tax rate in Sask, its only timing of the deductions.

Just interested in anyone thoughts

Thanks

[ColevilleH2S]

I've never done equipment but when it comes to bins, I always lease. The ability to save dollars on taxes via expense vs. depreciation, just works out better in the end.

[freewheat]

Leasing bins makes more sense to me as
well. Other classes that depreciate on
paper more, make less sense to lease. I
agree, on a drill, it would make hardly
any sense at all.

[wd9]

S99, if you can lease/buy that drill
over 2 or 3 years there is tax benefits,
ie sooner deductions.

I've used Caladon and they are a pro
company that can lease almost anything.
Bins over a 2 years and paying cash is
your best tax advantage. As in full
deduction of bin value in 2 years.

Cash buyers can keep doing great method
till the loophole is closed.

[Wheatking]

Accountant told me CRA is starting to look
into the leasing of bins and not having a
buy out of appropriate value. IE, guys who
have a 3 year lease and a buy out of $1,
enabling them to depreciate the entire cost
of the bin over 3 years instead of the
normal depreciation rate used on bins. If a
guy was to do it right/legally you would
have to declare a FMV at the end of the
lease and in the case of hopper bins it is
likely to be worth more than originally
paid.

[bucket]

The obvious question is - Why doesn't the CRA make a more reasonable CCA for bins if they want farmers to buy them instead of lease them?

I would buy bins, but right now the big deductions come from leasing them not buying them.

The CRA has to rethink its policies and change with the times. They will spent more money trying to penalize farmers that use their rules instead of changing their policy to reflect what farmers need to help create an healthy economy.

Really does it matter how I pay for my bins as long as it creates business/employment/helps the economy.

If I was CRA I would be more worried if people were not buying or leasing bins at all. Or worse yet not filling them.

They will trip over dollars to look for nickels.

[dmlfarmer]

Talk to your accountant first. Ask him the difference between a capital lease and an operating lease, the tax implication and CRA's view on both. If he can not tell you the difference it is time to get a new accountant.
A lot of farmers are getting conned by bad advice from accountants/leasing companies/bin manufactures into lease arrangements that are clearly tax avoidance schemes. On the other hand, leases have a valuable role in cash flow management and for acquiring assests needed for a short term period.

A short term lease/low buyout of a long term asset like a bin will be considered a capital lease if you are ever audited and you will likely face back taxes and penalites at that time.
A much bigger risk that very few financial advisors tell farmers occurs when you sell the farm/bin. Having a yard full of leased/purchased bins that have no book value but are likely worth much more will raise a lot of flags and CRA is able to go all the way back to date of purchase to determine if those bins were purchased for fair market value or if taxes were avoided through use of an operating lease rather than a capital lease. If so, repayment of taxes, penalities, and interest on both will be chargeable from date of purchase to date of sale.

[ColevilleH2S]

dmlfarmer. I somehow knew someone was going to come on to this thread, and tell me bin leases were not kosher. Someone (me?) should tell the bin retailer who convinced me it was "the way to go" when I leased the bins. Because I don't think CRA will care too much, if in the middle of an audit,I tell them "the bin seller said it was OK to do."

[oneoff]

The CRA has time on its side.

When sommeone has cleared the audit involving their bin leases; then report back; and instead of your interpretation of the income tax act laws; we will all be able to rely on a confirmed example approved by CRA.

[MBgrower]

I agree with dmlfarmer. If you are audited by CRA, you likely will get nailed on bin leases. My (accredited) accountant has always told me not to lease bins, it's not allowed.

By the way, dont accept financial advice from any bin, machinery, car dealer, etc.