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	Should I buy it, or should I lease it?   The one question I get more than any other, from my self-employed clients is: should I buy this asset or should I lease it?, and my answer is always the same; it depends. No two self employed people are the same, one may own a construction company that's capital asset intensive, while another may own an after school tutoring business that involves no capital assets.  A capital asset is any asset you've purchased that has lasting value to your business, beyond its initial usage. A general guideline is any asset you've bought that cost more than a thousand dollars, and will last more than one year, ie. computer, car, photocopier, etc..  The current Canada Revenue Agency rules on buying versus leasing breaks down like this;   - If you buy a capital asset you do not get to write off the entire cost of that asset in the year you purchased it, rather, you must spread the cost over several years. This yearly write-off is referred to as CCA, ( Capital Cost Allowance ), and is subject to strict rules and limitations.  Different assets are grouped into different classes, with the discretionary allowance claimed annually as a fixed percentage, on a declining balance basis. In the year of purchase, only one-half of the normal allowance can be taken on the asset. This is known as the half-year rule. If more than one asset of the same class is purchased, then they are combined in the class, and CCA is then calculated as a percentage of the whole class,  ie. (Beginning balance + additions(1/2) - dispositions) x % = CCA.  Some commonly used classes and rates:  Class 10 - (30%) - Automobiles, Computer hardware  Class 12 - (100%) - Computer software  Class   8 - (20%) - Furniture, fixtures, and equipment  It should be noted that a self-employed taxpayer cannot utilize the CCA to increase a loss for the year. In other words, if after deducting all other business expenses, except CCA, the self employed's income statement is already in a loss position for the year. They will then be unable to deduct the CCA for that year, and will have to wait until the next year that they're showing a profit, to resume deducting CCA.   - If you lease a capital asset, you can write off the total of all lease payments paid in the year, inclusive of any down payment, as long as the amount is reasonable. With no half-year rule and no restrictions for loss positions.    I'll give you an example using both situations: Ms. X is a Physiotherapist who is considering purchasing a ten thousand dollar massage table for her office.  She can either buy it outright, or she can lease it for five years, at a monthly lease charge of $150.00.  If she buys:  In the first year she'll be able to write off : $1000* in CCA  With a UCC (Undepreciated Capital Cost) balance of $9000 for year two.   *Massage table is class 8 - ($10,000 x 1/2) x 20% = $1000  In year two she can write off :  $1800 - ($9000 x 20%)  In year three she can write off: $1440 - ($7200 x 20%)  In year four she can write off: $1152 - ($5760 x 20%)  In year five she can write off: $922 - ($4608 x 20%)  If she leases:  During the five years of the lease Ms. X will be able to write off the full $1800, each year.  So you can see now why I always answer "it depends" when asked the buy or lease question. There are many factors that can influence this decision, such as: profitability of the business, cash flow, types of assets involved, obsolescence of the asset, financing costs.  These should all be considered before making any capital purchases for your business.
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