Are there tax differences between buying and leasing a vehicle for my business in Ontario?
There are meaningful tax differences between buying and leasing a business vehicle, though neither approach is universally better — it depends on your circumstances.
When you buy a vehicle, you claim Capital Cost Allowance (CCA) to deduct its cost over time. For most passenger vehicles, the CCA rate is 30% on a declining balance. There is also a federal cap on the cost eligible for CCA — meaning expensive vehicles have a ceiling on the deductible base regardless of purchase price.
When you lease, your deductible amount is a portion of the monthly lease payment, subject to a federal monthly deduction limit. The limit is revised periodically, so current figures should be verified with a tax professional. Both the buying and leasing deductions are further limited to the business-use percentage based on your mileage log.
Practically, leasing can be simpler to manage (no CCA calculations), while buying builds equity and may yield more deductible cost if the vehicle is affordable relative to the federal cap. The better choice depends on your cash flow, vehicle cost, and planned business use duration.
Key takeaways
- Purchased vehicles are deducted through CCA over multiple years, subject to a federal cost ceiling.
- Leased vehicles are deducted at the business-use portion of monthly payments, subject to a federal monthly cap.
- Both methods are limited to the business-use percentage based on your mileage log.
- The best choice depends on vehicle cost, cash flow, and how long you plan to use it in the business.