Business Vehicle Lease vs Buy Calculator | Canada

What is the business vehicle lease vs. buy calculator?

The business vehicle lease vs. buy calculator compares the total after-tax cost of leasing a vehicle against buying one, for a Canadian business. It uses Canada Revenue Agency (CRA) rules on capital cost allowance, deductible interest, and lease-payment limits, along with the small-business tax rate for the chosen province or territory. The result shows which option costs less over the loan or lease term, and by how much.

Leasing and buying spread cost differently. A lease usually has lower monthly payments and no resale step at the end. A loan builds ownership and lets the business claim depreciation, but it carries the risk and reward of the vehicle's resale value. Because the deductions differ, the cheaper option is not always the one with the lower monthly payment. The calculator adds up every payment, deduction, and tax effect over the whole term to find the true cost of each path.

How to calculate the cost of buying a business vehicle

Monthly loan payment

The loan payment uses the standard amortization formula:

$\text{Monthly Payment} = P \times \frac{r(1+r)^n}{(1+r)^n - 1}$

• $P$ = the amount borrowed (the purchase price, assuming no down payment)
• $r$ = the monthly interest rate (the annual rate divided by 12)
• $n$ = the number of monthly payments (60 for a 5-year loan)

Depreciation (capital cost allowance)

A vehicle loses value every year, and the CRA lets a business deduct that loss as capital cost allowance (CCA). A passenger vehicle depreciates at 30% of its remaining value each year, on a declining balance. In the first year, a temporary federal rule lets a business claim three times the usual first-year amount: 45% instead of 15%. This applies to vehicles bought after 2024 and put into use before 2030.

If a vehicle costs more than the CRA's yearly price ceiling ($39,000 for vehicles bought in 2026), only the ceiling amount can ever be depreciated. The rest of the purchase price is never deductible.

Interest deduction limit

Loan interest is deductible, but only up to a monthly ceiling set by the CRA ($350 a month for loans taken out in 2026). Any interest paid above that ceiling brings no tax benefit.

Recapture on resale

At the end of the term, the calculator treats the vehicle as sold for its estimated resale value. If that value is higher than the vehicle's remaining undepreciated balance, the difference is called recapture, and it is added back to taxable income and taxed at the business's marginal rate. Vehicles priced above the $39,000 ceiling are exempt from recapture.

Total cost of buying

$\text{Total Buying Cost} = \text{Total Loan Payments} - \text{Tax Savings} + \text{Tax on Recapture} - \text{Resale Value}$

where

$\text{Tax Savings} = (\text{Deductible Interest} + \text{CCA Claimed}) \times \text{Marginal Tax Rate}$

How to calculate the cost of leasing a business vehicle

Monthly lease payment

A lease payment has two parts: a depreciation fee, which covers the vehicle's expected drop in value, and a finance fee, similar to interest.

$\text{Depreciation Fee} = \frac{\text{Capitalized Cost} - \text{Residual Value}}{\text{Number of Months}}$

$\text{Finance Fee} = (\text{Capitalized Cost} + \text{Residual Value}) \times \text{Money Factor}$

The money factor is the lease's interest rate divided by 2400. The two fees add up to the monthly lease payment.

Lease deduction limit

Lease payments are fully deductible, not partly deductible: there is no rule that limits the deduction to a fixed share, such as 80%, of the payment. Instead, the CRA caps the deductible amount at a flat dollar ceiling per month ($1,100 a month for leases signed in 2026). Any lease payment above that ceiling is not deductible.

Total cost of leasing

$\text{Total Leasing Cost} = \text{Total Lease Payments} - \text{Tax Savings}$

where

$\text{Tax Savings} = \min(\text{Monthly Lease Payment}, \$1{,}100) \times \text{Months} \times \text{Marginal Tax Rate}$

Leasing has no resale value in the formula, because the vehicle goes back to the leasing company at the end of the term.

Example

A business in Ontario is choosing between leasing and buying a $35,000 truck for 5 years. The loan rate is 6$15,750) at the end of the term. The business is incorporated, so its marginal tax rate is Ontario's 2026 small-business rate, 12.2%.

Buying

Leasing

In this example, buying costs about $3,996 less than leasing over the 5-year term, mainly because the CCA deductions from an accelerated first-year claim outweigh the lease's lower monthly payment.

Small-business tax rates by province

The calculator suggests a marginal tax rate for an incorporated business, equal to the combined federal and provincial small-business tax rate on active business income. These are the 2026 combined rates for a Canadian-controlled private corporation:

A sole proprietor is not taxed at the corporate rate. Instead, vehicle deductions reduce their personal income, so they should enter their own personal marginal tax rate instead of the suggested figure.

When leasing tends to cost less

Leasing tends to work out cheaper when a vehicle is replaced often, since the lease term can be matched to a shorter ownership period and the business avoids the risk of the vehicle losing value faster than expected. It also keeps monthly payments lower, which can matter for a business managing tight cash flow. Most leases limit yearly mileage (commonly 16,000 to 24,000 km) and charge a fee for going over, so leasing suits vehicles with predictable, moderate use.

When buying tends to cost less

Buying tends to work out cheaper for a vehicle kept for many years, high-mileage vehicles that would trigger lease overage charges, or vehicles that need permanent modifications a lease would not allow. Once the loan is paid off, the business owns an asset it can keep using, sell, or trade, with no more monthly payments.

Frequently asked questions

Does the calculator include GST or HST? No. GST and HST paid on a lease or purchase are usually recoverable through input tax credits for a GST/HST-registered business, so they do not change the value of an income tax deduction. The calculator works only with income tax.

Is 80% of a lease payment deductible? No. A lease payment is fully deductible up to the CRA's monthly dollar ceiling ($1,100 a month in 2026). There is no fixed percentage limit on lease deductions.

What happens if I buy a vehicle that costs more than the CCA ceiling? The ceiling ($39,000 for 2026) sets the maximum amount that can ever be depreciated, no matter what the vehicle actually cost. A vehicle priced above the ceiling is also exempt from recapture tax when it is sold.

What is recapture, and when does it apply? Recapture happens when a vehicle is sold for more than its remaining undepreciated value. The excess is added back to taxable income. It only applies to vehicles priced at or below the CCA ceiling.

Should a sole proprietor use the suggested tax rate? No. The suggested rate is the small-business corporate rate, which only applies to an incorporated business. A sole proprietor should replace it with their own personal marginal tax rate, since vehicle deductions reduce personal income instead.

Does the calculator account for a down payment? No. It assumes the full purchase price is financed. A down payment would lower the loan amount and the interest paid, so the buying cost shown here is a starting point rather than a final number for a business planning a down payment.