New, or new to you – accounting tips for car buyers

By Institute of Chartered Accountants of Ontario – 

Who doesn’t love a new car? Unfortunately, you pay a huge premium for that new-car happiness. A vehicle is not an investment. It’s a constantly dwindling asset that loses value the minute you drive it off the lot, depreciating by as much as 20 per cent the first year.

Then again, new cars come with guarantees – if something goes wrong, the manufacturer fixes it. And with all the recent upheaval in the auto industry, there are some good deals to be had on new cars. But can they compete with the price of a well-maintained used car with low mileage? What things should you consider as you weigh the pros and cons of buying new versus used?

Chartered Accountant Chandor Gauthier is Senior Manager, Audit & Assurance at Soberman LLP in Toronto. She’s built a career advising clients about how to spend money wisely. Here, she shares seven valuable tips for anyone thinking of buying a new car, even if it’s just new to you.

1.    Do your research. Before you set foot in a showroom, arm yourself with information. You’ll be far less likely to make an impulse buy if you’ve spoken to your accountant about what you can afford, your mechanic about safety and reliability, and your insurer about what the monthly premiums will be.

2.    Know what you’re spending now. Gas, oil, tires and tune-ups are just some of the operating expenses that don’t go away when you buy a new car. Can your budget support those and the new car payment too?

3.    Don’t overlook the fine print. Before you convince yourself that you can live with the sticker price, factor in taxes, dealer preparation and handling, licence and registration. Ask for the all-in cost.

4.    Consider the $30k rule. If you need that new car or truck for work, know that for tax purposes, amortization is capped at $30,000 plus taxes. For the overage, you’re on your own.
5.    Can you expense the interest? If you’re using that new vehicle for business and are financing it, you can claim the applicable amount of interest as a business expense. If it’s 75 percent work and 25 percent other, you can deduct 75 percent of the interest on the financing costs.

6.    Insist on a vehicle history if buying used. Horror stories abound of unscrupulous salespeople misrepresenting used vehicles and what has happened to them. Stolen used cars and trucks are being sold, as are unsafe vehicles and increasing cases of two wrecked vehicles welded together are being discovered. Use the Vehicle Identification Number (VIN) to go to on-line sites like CARFAX and find out the real story.

7.    Trust the people you know. Before you buy a used car or truck, pay to have your own mechanic inspect it. Make the sale conditional on getting the green light from an advisor you trust, and negotiate to have any of the remaining warranty transferred over to you.

Brought to you by the Institute of Chartered Accountants of Ontario  Posted July 2010