One of the most common questions Canadian business owners ask is:

Should my corporation buy or lease a vehicle?

There is no one-size-fits-all answer. The right choice depends on:

• Cash flow and financing capacity
• Corporate tax planning
• CRA deduction limits
• Balance sheet considerations
• Lifestyle and usage patterns

At Momentum Accounting CPA Professional Corporation, we help corporations across Hamilton, Toronto, Mississauga, Brampton, Oakville, Milton, Vaughan, Markham, Scarborough, Ottawa, Kitchener-Waterloo, London, Windsor, and across Canada evaluate whether leasing or buying makes the most sense.

What Does Leasing vs Buying Mean?

Leasing a Vehicle

Leasing means your corporation rents the vehicle for a fixed term (typically 2–4 years).

• The leasing company owns the vehicle
• Monthly lease payments are made
• At the end, you return or buy the vehicle

Buying a Vehicle

Buying means your corporation owns the vehicle.

• Paid upfront or financed through a loan
• The vehicle appears as an asset on the balance sheet
• Ownership creates equity and long-term value

Cash Flow & Financing Considerations

Monthly Payments

• Lease payments are usually lower than loan payments
• Helpful for businesses managing tight or variable cash flow

Upfront Cost

• Leasing typically requires less upfront cash
• Buying often requires a larger down payment

Hidden or Variable Lease Costs

• Mileage limits
• Wear-and-tear charges
• End-of-lease penalties

Businesses with high mileage often find leasing less economical.

Ownership, Equity & Balance Sheet Impact

Leasing

• No ownership or equity
• No asset recorded (simpler balance sheet)
• Attractive for companies with bank covenants or borrowing limits

Buying

• Builds equity
• Asset can be sold or traded later
• More control over usage and customization

Over time, purchasing can be more economical for long-term users.

Tax Implications: Leasing vs Buying (CRA Rules)

Lease Deductibility

• Lease payments are deductible up to CRA limits
• Excess amounts are not deductible

Buying & Financing

• Only the interest portion of loan payments is deductible
• The vehicle qualifies for Capital Cost Allowance (CCA)

Capital Cost Allowance (CCA)

• Available only if the corporation owns the vehicle
• Deduction rates depend on vehicle class
• CRA imposes maximum vehicle cost limits

👉 While leasing allows deduction of lease payments and buying allows interest + CCA, the overall tax benefit is often similar — once CRA limits are applied.

Personal vs Business Use (Critical CRA Issue)

• Deductions must be prorated between business and personal use
• Personal use creates a taxable standby charge and operating benefit
• Accurate mileage logs are essential

Improper tracking is a common CRA audit trigger.

Non-Financial Factors That Matter

Lifestyle & Flexibility

• Leasing allows frequent upgrades to new models
• Buying suits long-term ownership preferences

Mileage

• High-mileage drivers usually benefit from buying

Customization

• Leasing restricts modifications
• Ownership allows full control

Pride of Ownership

• Many owners value long-term control and equity

Common Mistakes Business Owners Make

1. Buying or leasing before consulting a CPA
2. Ignoring CRA deduction limits
3. Poor mileage tracking
4. Incorrect personal-use reporting
5. Choosing based only on monthly payment
6. Missing financing vs leasing interest comparisons

Once a vehicle transaction is completed, tax optimization options become limited.

How Momentum Accounting CPA Professional Corporation Helps

We help corporations:

• Compare lease vs purchase options
• Apply CRA deduction limits correctly
• Optimize vehicle tax deductions
• Track personal vs business use
• Avoid CRA penalties and reassessments
• Integrate vehicle decisions into broader tax planning

📍 Serving Hamilton, Toronto, GTA & Canada-wide

📧 info@momentumaccountingcpa.ca

📞 647-717-1242

Key Takeaways

• Leasing and buying can both be tax-effective
• CRA limits significantly impact deductions
• Cash flow, usage, and long-term goals matter
• Early planning produces better outcomes
• Professional advice should come before signing

Disclaimer

This article is for general information only and does not constitute tax or legal advice. Individual circumstances vary. Consult a qualified CPA before making vehicle purchase or lease decisions.