Car Allowance vs. Company Car
8
Car Allowance vs. Company Car A guide on fleet leasing of corporate vehicles vs reimbursing staff for personal vehicles.
Transcript of Car Allowance vs. Company Car
Car Allowance vs. Company Car A guide on fleet leasing of corporate
vehicles vs reimbursing staff for personal vehicles.
11
Leasing costs include far more than the lease fees. You must also include interest, depreciation, maintenance and repairs, fuel, and insurance—and then compare that total to the fixed or variable reimbursement scheme, over the entire duration of a comparable lease.
The value of vehicles is a key variable. It affects the capitalized cost, fuel, maintenance and repair costs, and the estimated depreciation in value over the lease term. Other important variables include the financing terms, annual mileage, insurance, and fuel prices.
When it comes to reimbursement costs, the variables include the structure of the reimbursement agreement —is it fixed or variable, or a combination of both—and the amounts to be reimbursed.
Lease your company vehicles, or reimburse? When you’re responsible for providing your staff with their work vehicles, you face an important choice: to lease the vehicles, or to reimburse staff for the use of their personal vehicles. Which is best? This paper outlines the costs and benefits.
To make a fair comparison, you should first determine all the variables in each strategy, and then make a model of the financial picture over time. In the example below, the costs for leasing, fixed reimbursement, and variable reimbursement are compared month after month.
The chart on the opposing page is in line with typical fleet-leasing experience and assumptions: when realistic reimbursement amounts are added up over time. The employer will generally find that the costs of leasing soon cross the breakeven point, and drop far lower than the costs of reimbursement. The longer the vehicle’s usage life, the lower the relative costs of leasing.
Lease or reimburse? There are many factors to consider
2 2
$50,000
$40,000
$30,000
$20,000
$10,000
Cumulative Market Value Depreciation Expense
Cumulative Interest Expense
Cumulative Fuel Expense
Cumulative Reimbursement Expense (incl fees)
Cumulative Insurance Expense
Months in Service
33
Get the real picture. Compare all-in lifecycle costs and benefits
Individuals on reimbursement plans must negotiate their own purchase price, and their personal loan or lease, usually with a significant down payment.
Because fleet leasing corporations purchase many vehicles, they have skilled buyers with established
relationships with vehicle manufacturers. They enjoy volume pricing, plus manufacturer incentives and rebates. As a result, they can typically acquire vehicles at lower cost, with better financing terms than individuals can secure.
Cost to employer Cost to employee Difference
Factory Base Invoice $26,207 $28,699 ($2,492)
Freight, Air Tax $1,790 $1,790 $0
Manufacturer Allowance ($1,000) $0 ($1,000)
Dealer Markup $150 ($500) $350
Advertising $0 $200 ($200)
Licence $100 $100 $0
PURCHASE COSTS COMPARED: FLEET LEASE VEHICLE VS. INDIVIDUAL PURCHASE
4 4
A company car can be a powerful recruiting tool While some feel that employees prefer to be reimbursed (because reimbursement lets them choose their own vehicle), industry surveys show that potential hires perceive a company vehicle as a valuable benefit.
Reimbursement can actually be a hiring disadvantage. If a potential hire’s current employer provides them with a company-supplied vehicle, they will be forced to buy their own car—and pay the down payment— which may make them reluctant to take the new job.
Statistics show employee turnover tends to increase when companies change from company-supplied vehicles to a reimbursement program. Fleet Financials reported switching to a reimbursement program resulted in a 10 percent near-term turnover rate.
Maintenance and repair costs are lower for companies than for individuals The purchasing power of fleet operators gives them a network of repair and maintenance partners and drives costs down. Savings that are passed on to their lease clients, through maintenance programs that provide discount pricing on maintenance, repairs, tires and labour. Since these maintenance and repair charges are managed through the leasing company, record keeping is accurate.
With leased vehicles, repair downtime is minimized, and (depending on the contract) replacement vehicles may be provided, which keeps employees on the road, and on the job. When employees are responsible for their own repairs, they have been known to book those repairs on company time, which puts them ‘on the clock but off the job’.
55
With company vehicles, appropriate insurance is assured
Reimbursement programs depend on the accuracy and honesty of employees’ record keeping. It is well known that many employees exaggerate their mileage in order to increase their reimbursement. In fact, Fleet Financials reported on one fleet management company that conducted a study
Some companies look the other way, assuming that any liability will the driver’s problem. This is not the case. Legally, it is the company’s responsibility to ensure that their drivers are correctly insured when
with its lessees. They found that reported business mileage dropped by 30 percent after the company switched from reimbursement to a company-provided vehicle (based on recorded fuel card or maintenance- sourced mileage).
on the job. If a driver is on company business without adequate insurance, the liability generally falls to their employer. The potential costs to the company can be significant.
Commercial-class vehicle insurance can be costly. Employees on reimbursement programs can be tempted to save money and avoid the full insurance, “hoping for the best”.
Factor in the risks. Including your company’s image and standards
6 6
Company vehicles ensure a strong, consistent image For sales or service calls, when your people drive up for a client visit, the vehicle they arrive in speaks volumes about your company. With a reimbursement program, you have no guarantee that your people will
be driving an appropriate vehicle for the job, or that the vehicle is in a condition that reflects well on your company. A company-provided, company-maintained vehicle protects your corporate image.
Company vehicles are safer Reimbursement programs provide less control over driver safety. When there is more flexibility in vehicle requirements and parameters, some employees will try to save money on their vehicle and pocket the difference from their reimbursement program.
Company-provided vehicles, on the other hand, are equipped with the latest safety features and technologies, and are selected for their fitness to the task.
7
T 905-886-2522 F 905-886-4244 Toll Free in Canada 1-800-461-3677 fossnational.com
Toronto 125 Commerce Valley Dr. W Suite 801 Markham, ON L3T 7W4
Montréal 2345 Autoroute des Laurentides Suite # 100 Laval, QC H7S 1Z7
Calgary Suite 201, 5819 2nd Street SW Calgary, AB T2H 0H3
Edmonton PO Box 73107 Hamptons PO Edmonton, AB T5T 3X1
Vancouver Suite 205, 55 Water Street Vancouver, BC V6B 1A1
It’s easier to manage ‘authorized drivers only’ rules with company cars
Reimbursement programs have tax implications
The next decision?
With a company-provided fleet, it’s relatively easy to restrict vehicle use to employees and authorized drivers, and/or to confiscate vehicles from those who lose their licence. With reimbursement programs, it’s
Employee reimbursement rates (per-kilometre amounts) are prescribed in Section 7306 of the Income Tax Act. Reimbursement at these rates is not considered “taxable income” for the employee. Amounts above those proscribed by the CRA, or flat-rate allowances (or a combination of per-kilometre and flat-rate allowance) are considered a “taxable
If you choose to lease your company fleet, the next decision is easy: contact Foss National Leasing. We offer cost-effective leasing solutions that are custom designed to make your fleet work for you, not the other way around.
far more challenging to control vehicle use and avoid potential liabilities from unauthorized or unlicensed drivers driving on company time.
benefit” to the employee and must be included in the employee’s income.
The CRA guidelines can be complex. You should consult tax experts when comparing the costs of leasing versus reimbursement.
Follow us
For white papers, blogs and more, please follow/like us at:
@fossnational
@fossnational
Montréal T 514-873-5932
Calgary T 403-663-8778
Vancouver T 604-880-1131
fossnational.com
11
Leasing costs include far more than the lease fees. You must also include interest, depreciation, maintenance and repairs, fuel, and insurance—and then compare that total to the fixed or variable reimbursement scheme, over the entire duration of a comparable lease.
The value of vehicles is a key variable. It affects the capitalized cost, fuel, maintenance and repair costs, and the estimated depreciation in value over the lease term. Other important variables include the financing terms, annual mileage, insurance, and fuel prices.
When it comes to reimbursement costs, the variables include the structure of the reimbursement agreement —is it fixed or variable, or a combination of both—and the amounts to be reimbursed.
Lease your company vehicles, or reimburse? When you’re responsible for providing your staff with their work vehicles, you face an important choice: to lease the vehicles, or to reimburse staff for the use of their personal vehicles. Which is best? This paper outlines the costs and benefits.
To make a fair comparison, you should first determine all the variables in each strategy, and then make a model of the financial picture over time. In the example below, the costs for leasing, fixed reimbursement, and variable reimbursement are compared month after month.
The chart on the opposing page is in line with typical fleet-leasing experience and assumptions: when realistic reimbursement amounts are added up over time. The employer will generally find that the costs of leasing soon cross the breakeven point, and drop far lower than the costs of reimbursement. The longer the vehicle’s usage life, the lower the relative costs of leasing.
Lease or reimburse? There are many factors to consider
2 2
$50,000
$40,000
$30,000
$20,000
$10,000
Cumulative Market Value Depreciation Expense
Cumulative Interest Expense
Cumulative Fuel Expense
Cumulative Reimbursement Expense (incl fees)
Cumulative Insurance Expense
Months in Service
33
Get the real picture. Compare all-in lifecycle costs and benefits
Individuals on reimbursement plans must negotiate their own purchase price, and their personal loan or lease, usually with a significant down payment.
Because fleet leasing corporations purchase many vehicles, they have skilled buyers with established
relationships with vehicle manufacturers. They enjoy volume pricing, plus manufacturer incentives and rebates. As a result, they can typically acquire vehicles at lower cost, with better financing terms than individuals can secure.
Cost to employer Cost to employee Difference
Factory Base Invoice $26,207 $28,699 ($2,492)
Freight, Air Tax $1,790 $1,790 $0
Manufacturer Allowance ($1,000) $0 ($1,000)
Dealer Markup $150 ($500) $350
Advertising $0 $200 ($200)
Licence $100 $100 $0
PURCHASE COSTS COMPARED: FLEET LEASE VEHICLE VS. INDIVIDUAL PURCHASE
4 4
A company car can be a powerful recruiting tool While some feel that employees prefer to be reimbursed (because reimbursement lets them choose their own vehicle), industry surveys show that potential hires perceive a company vehicle as a valuable benefit.
Reimbursement can actually be a hiring disadvantage. If a potential hire’s current employer provides them with a company-supplied vehicle, they will be forced to buy their own car—and pay the down payment— which may make them reluctant to take the new job.
Statistics show employee turnover tends to increase when companies change from company-supplied vehicles to a reimbursement program. Fleet Financials reported switching to a reimbursement program resulted in a 10 percent near-term turnover rate.
Maintenance and repair costs are lower for companies than for individuals The purchasing power of fleet operators gives them a network of repair and maintenance partners and drives costs down. Savings that are passed on to their lease clients, through maintenance programs that provide discount pricing on maintenance, repairs, tires and labour. Since these maintenance and repair charges are managed through the leasing company, record keeping is accurate.
With leased vehicles, repair downtime is minimized, and (depending on the contract) replacement vehicles may be provided, which keeps employees on the road, and on the job. When employees are responsible for their own repairs, they have been known to book those repairs on company time, which puts them ‘on the clock but off the job’.
55
With company vehicles, appropriate insurance is assured
Reimbursement programs depend on the accuracy and honesty of employees’ record keeping. It is well known that many employees exaggerate their mileage in order to increase their reimbursement. In fact, Fleet Financials reported on one fleet management company that conducted a study
Some companies look the other way, assuming that any liability will the driver’s problem. This is not the case. Legally, it is the company’s responsibility to ensure that their drivers are correctly insured when
with its lessees. They found that reported business mileage dropped by 30 percent after the company switched from reimbursement to a company-provided vehicle (based on recorded fuel card or maintenance- sourced mileage).
on the job. If a driver is on company business without adequate insurance, the liability generally falls to their employer. The potential costs to the company can be significant.
Commercial-class vehicle insurance can be costly. Employees on reimbursement programs can be tempted to save money and avoid the full insurance, “hoping for the best”.
Factor in the risks. Including your company’s image and standards
6 6
Company vehicles ensure a strong, consistent image For sales or service calls, when your people drive up for a client visit, the vehicle they arrive in speaks volumes about your company. With a reimbursement program, you have no guarantee that your people will
be driving an appropriate vehicle for the job, or that the vehicle is in a condition that reflects well on your company. A company-provided, company-maintained vehicle protects your corporate image.
Company vehicles are safer Reimbursement programs provide less control over driver safety. When there is more flexibility in vehicle requirements and parameters, some employees will try to save money on their vehicle and pocket the difference from their reimbursement program.
Company-provided vehicles, on the other hand, are equipped with the latest safety features and technologies, and are selected for their fitness to the task.
7
T 905-886-2522 F 905-886-4244 Toll Free in Canada 1-800-461-3677 fossnational.com
Toronto 125 Commerce Valley Dr. W Suite 801 Markham, ON L3T 7W4
Montréal 2345 Autoroute des Laurentides Suite # 100 Laval, QC H7S 1Z7
Calgary Suite 201, 5819 2nd Street SW Calgary, AB T2H 0H3
Edmonton PO Box 73107 Hamptons PO Edmonton, AB T5T 3X1
Vancouver Suite 205, 55 Water Street Vancouver, BC V6B 1A1
It’s easier to manage ‘authorized drivers only’ rules with company cars
Reimbursement programs have tax implications
The next decision?
With a company-provided fleet, it’s relatively easy to restrict vehicle use to employees and authorized drivers, and/or to confiscate vehicles from those who lose their licence. With reimbursement programs, it’s
Employee reimbursement rates (per-kilometre amounts) are prescribed in Section 7306 of the Income Tax Act. Reimbursement at these rates is not considered “taxable income” for the employee. Amounts above those proscribed by the CRA, or flat-rate allowances (or a combination of per-kilometre and flat-rate allowance) are considered a “taxable
If you choose to lease your company fleet, the next decision is easy: contact Foss National Leasing. We offer cost-effective leasing solutions that are custom designed to make your fleet work for you, not the other way around.
far more challenging to control vehicle use and avoid potential liabilities from unauthorized or unlicensed drivers driving on company time.
benefit” to the employee and must be included in the employee’s income.
The CRA guidelines can be complex. You should consult tax experts when comparing the costs of leasing versus reimbursement.
Follow us
For white papers, blogs and more, please follow/like us at:
@fossnational
@fossnational
Montréal T 514-873-5932
Calgary T 403-663-8778
Vancouver T 604-880-1131
fossnational.com
