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You want to purchase a new printing press. Your company wants Capital Cost Allowance (CCA) for tax purposes that comes with a loan, but the cash flow benefits of a lease are very attractive. Which funding solution do you choose: A loan or a lease? It is a little known fact that you can get both benefits at the same time--a lease with a joint-election combines the tax features of a term loan with the cash flow benefits of a lease. The joint-election is a major factor in deciding how to finance equipment and should always be considered when acquiring assets with long economic life such as printing equipment. The joint-election expands your equipment funding alternatives--and can save your company money. What is a joint-election? A joint-election is a leasing feature which takes advantage of Revenue Canada's joint-election filing for eligible equipment introduced in the 1989 Federal Budget. A joint-election allows a lessee to claim CCA or tax depreciation under a lease. Instead of normally expensing all of the lease rentals for tax purposes, the lessee can treat the lease as though it were a loan; the rental payments will be treated, for tax purposes, not as rent, but as blended payments of interest and principal. Generally, printing equipment qualifies for joint-elections provided the term of the lease is greater than one year and the cost of the leased equipment is greater than $25,000. How does it work? Let's take a typical example to illustrate how a joint-election functions. ABC Printing Company placed an order for a $2.5 million, 5-colour sheetfed press, plus coater. The equipment will be delivered in the last month of their fiscal year. The company keeps equipment for six years and needs to accurately evaluate its equipment funding alternatives. It is important to the company to increase its current CCA level. A leased structured to meet these needs would have the following characteristics: Typical joint-election: 72 monthly payments of $41,116 with a 10% or $250,000 option at the 72nd month using standard leasing documentation. At the lease inception, the lessee and lessor sign a one-page joint-election form (T2 145), formally declaring their intent to jointly claim CCA under this lease agreement. When your accountant prepares your tax return, the lease payment of $41,116 is not expensed--rather specific interest and CCA expenses are calculated to reduce taxable earnings. Capital cost allowance is claimed at the normal rate for printing equipment. According to Revenue Canada, the lessee may calculate interest expense as 1% greater than the Government of Canada's 10-year bond rate on the last Wednesday of the month three months previous to drawdown. How to evaluate your savings The cost of financing any piece of equipment is your monthly payments less any tax savings generated. To have an accurate comparison of the cost of each financial option, the future stream of payments less future tax savings must be discounted back into today's dollars. Continuing the above example of ABC Printing Company, each transaction type would have the following results: JOINT-ELECTION: $1,018,806 LEASE: $1,204,154 TERM LOAN: $1,190,549 CASH PURCHASE: $1,829,653 In this example, the least expensive alternative is a lease with a joint-election, representing $810,847.00 in tax savings over the most expensive option-paying cash. The joint-election lease has significant tax benefits because of the timing of equipment delivery. The company has only had the equipment for less than four weeks before its year-end, yet, it gets to claim a half year of CCA on its tax return. This aspect, plus cash flow savings of a lease, makes a joint-election lease cheaper for the company than a regular lease or a term loan. Funding decisions are no longer decisions between loans and leases. A lease with a joint-election must be considered-especially when the equipment is delivered late in your fiscal year and the contract term is five years or greater. If your financial institution does not have this leasing feature or, worse, is not aware of the feature--then find a financial institution that does. If you don't, you could be foregoing thousands of dollars in tax savings unnecessarily to the government.