Topic: Tax on a Lease with Trade In

[slingo56]

Have a trade in that I will get about what I own on it. Thinking of going with a lease (have leased in the past). How is tax calculated where I have a trade. I know if I  were buying I would get credit for the tax value of the trade (.06*$15,000 for instance) but what happens with a lease where only the payments usually attract the tax.

.06*15000 = $900 tax credit

lease payment $400 + tax for 24 months.

How would this work?

[hondasalesguy]

Your trade will reduce the taxes paid per monthly payment.

Example: If the new car yields a payment of, say, $400 + tax, in Ontario this would give  you a payment of $456 including taxes.

However with a $15K trade, your payment may be something like $415 including taxes. Same base payment, much less PST and GST on that payment.

[dash]

Sling,

Any realized value given for a trade in reduces the pre tax purchase price. If you are trading in a currently leased auto, then it is only the realized net value (positive) of the trade-in will reduce the pre-tax purchase price, with leases only the monthly portion of GST is paid, Gst has not been paid yet on the residual value, therefore no credit for that tax portion.

[slingo56]

Sounds reasonable. So if I trade at $15k I would get (15K*.06) a $900 tax credit.

If I lease at $400 per month plus tax = $400*.06=$24 per month GST. 24 month lease so total tax = $24*24=$576 total GST paid.

So in effect I would pay no tax on the lease. Payments would be $400 but I would loose out on the leftover tax credit of $324 ($900-$576). Is this correct?

[dash]

Yes, Yes and NO. If say purchase price is 30k, it would normaly be $1,800 of gst to be paid, with trade in, net purchase price is reduced to 15K, gst to be paid is $900 (at this point you have technically got your full credit on gst from trade in). Your lease payments are based on the net Purchase price less residual plus financing, then taxes are calucated on that monthly value.