The financial choices Canadian farmers and agribusinesses face have become more complex in today’s economy and for many, the decision to lease or buy new machinery or equipment can be overwhelming. Leasing can be an effective way to manage the costs of replacement equipment while maintaining cash flow. Many choose leasing over buying to avoid large up-front cash outlays or credit burden.

“Consider your business priorities when deciding to lease or buy equipment, don’t focus entirely on cost,” said Gwen Paddock, head, Agricultural and Agribusiness, RBC Royal Bank. “Leasing is a great way to lower cash flow demands while at the same time providing all of the benefits of ownership. On the other hand, purchasing equipment can be a better option for equipment that has a long usable life.”

To help you decide the best way to proceed, RBC Royal Bank suggests you consider the following:

How long will you need it?
If you need the equipment for a limited time or if you'll be upgrading every couple of years, leasing may be a better option. Alternately, if you plan to keep the equipment for its entire useful life, you might be better off purchasing it.

What are the tax benefits?
Leases can assist in management of taxes as you do not pay commodity taxes (GST, HST or PST) at the time of purchase. In addition, leases may be structured in a way that may have income tax benefits.

How will you be paying?
You want to avoid paying for long-term assets with working capital - money used to run your farm business, including paying for inputs. Doing so could hinder your ability to pay recurring obligations like rent, utilities or payroll if business conditions get tougher in the future. Retaining positive working capital is essential.

What's the total cost?
Before deciding which option is right for you, compare the total cost of leasing versus financing. Make sure you consider interest, insurance, maintenance costs, down payments, first and last payments, taxes and deferred taxes such as HST and/or income tax when considering the total cost of borrowing.

For more information, visit www.rbcroyalbank.com/agriculture.

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