Mind Your Farm Business — Ep. 38: What's the tax implication of buying vs. leasing?

There are some stubborn myths in agriculture — rain falls 90 days after fog, wheat should be seeded in bushels per acre, and there’s a tax advantage to leasing versus buying equipment.

In reality though, each of these statements is at least somewhat false. Fog and rain are not correlated, wheat should be planted in desired seeds/acre worked into pounds or kilograms first, and, for the most part, the tax advantage to leasing equipment has all but disappeared following last falls updates to Canada’s tax code.

Lance Stockbrugger, a former accountant and current farmer from Saskatchewan, says that the buy vs. lease question was one that he fielded nearly daily in his accounting practice. And, more often than not, when pressed for why a farmer was favouring a lease over a purchase, they cited the tax implication of the business write-off as a driving factor.

As Stockbrugger explains in this episode of Mind Your Farm Business, there are very good reasons to choose a lease over a purchase, but the tax implications of either fall somewhere third or even fourth on the list of considerations. Leasing has its place, he says, but trying to save on taxes isn’t one of them. Cash flow, interest rates, and capital budget constraints all have to be considered. What’s more, in recent legislative changes, the balance of which is more advantageous in a financial sense has actually shifted to buying over leasing.

From what type of person should lease, to how to treat that equipment, and on to some of the pitfalls of both buying and leasing, listen on as Stockbrugger walks us through this important financial decision.

Disclaimer: Royal Bank of Canada and its subsidiaries are not responsible for the information provided in this podcast, and this information does not necessarily reflect the views of Royal Bank of Canada or any of its subsidiaries. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its subsidiaries.

Hear more Mind Your Farm Business episodes here. 

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