Leasing versus Buying with a limited company - anyone looked into which one would be more cheaper?

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turtleattacks

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#273248 12-Aug-2020 14:41

Hi guys,

We are looking to buy a vehicle for our limited company, something new perhaps around $50,000.

For the similar vehicle on lease, it'll cost about $550-$600+GST per month to lease.

Say we want to upgrade every 4 years, anyone that has done the maths before know which one would be cheaper?

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Handsomedan

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#2539443 12-Aug-2020 14:45

I actually used to work in vehicle leasing & finance a few years ago (my info might be a little outdated).

Leasing had/has benefits re having a full-service lease, where you get servicing and maintenance included, the ability to offset some of the cost of the lease against tax (can't remember quite how that works, but it's an operating cost as opposed to a capital cost), plus the ability to upgrade before the end of the lease at the same price, if the circumstances fit.

From memory it was better for a company to have a full-maintenance operating lease than to buy, but the exact calculations escape me at present.

Also assuming that there is no interest cost associated with paying cash, the equivalent cost to pay off $50K over 3 or 4 years is as follows (rounded up to the nearest dollar);

50,000.00 / 36 = $1339

50,000.00 / 48 = $1042

Assume the $50k car is worth around $15k at the end of the period.

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#2539504 12-Aug-2020 16:09

New IFRS16 rules does away with the distinction between operating and finance leases.

https://www.pwc.com/gx/en/services/audit-assurance/assets/ifrs-16-new-leases.pdf

Handsomedan

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#2539549 12-Aug-2020 17:13

logo:

New IFRS16 rules does away with the distinction between operating and finance leases.

https://www.pwc.com/gx/en/services/audit-assurance/assets/ifrs-16-new-leases.pdf

Well ignore anything I said then...

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Scott3

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#2539812 12-Aug-2020 22:57

I have never run the analysis, but I do have the following comments:

Many businesses choose to lease vehicles in order to free up capital to use elsewhere in the business.
The terms on your particular lease are quite important, below is general only.
Mileage limits on leases can be problematic. If the vehicle is used less than the limit you throw that value away, but if it is used more than the limit penalties are steep.
When you return a leased car, you are likely to get billed for all damage. Often if selling privately it would often not be worth it to repair a kerb damaged wheel or a scratched up cargo bay of a van, but it is likely the lease company will insist this damage be paid for.
Leases are often quite inflexible. Big break fee's if the business need change, and you need to get rid of or change the vehicle. If you own the vehicle at least you can sell it. If you want to extend the lease for say a year at the end, I have head of cases where the lease company insisted on the same rate (despite the vehicle being depreciated & less desirable at that point).
Leases can be convenient, for example a passenger car with no mods, being swapped out with minimal effort on lease expiry, or can be inconvenient (say a trade van with interior fit out, roof racks etc that all have to be removed & remounted on the new van (assuming they still fit) right in the middle of a busy week as that is when the lease expires.
Upgrading every 36 or 48 months sounds great, but can be a bit pointless if the vehicle hasn't been updated in that time.

In terms of the basic maths.

If we take a Hi ace minibus as an example, a new one is $57,490(inc), And a used 2016 one with 72,000km is worth $32,000(inc). Works out to $25490 depreciation over 4 years, or $531(inc) per month.

Obviously would need to consider who pays maintenance, insurance etc.

In general Ute's, and newly released vehicles (Suzuki Jiminy, Tesla model 3) depreciate less.

Luxury vehicle's depreciate more, Vehicles common in rental fleets & as used imports from japan depreciate more.

Rental fleets & lease operators often have bulk deals with car suppliers so can purchase vehicles cheaper than small businesses.