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.

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 of the vehicle's resale value. Because the deductions differ, the cheaper option is not always the one with the lower monthly payment.

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). Passenger vehicles belong to Class 10 or Class 10.1, both with a 30% CCA rate, claimed on a declining balance. Normally a half-year rule limits the first-year claim to 15%. Under the federal Accelerated Investment Incentive, property that would be subject to the half-year rule gets a first-year claim of up to three times the normal first-year deduction, so 45% for a 30% class. Bill C-15, the Budget 2025 Implementation Act, No. 1, received royal assent on March 26, 2026. It reinstates the incentive in full for property acquired after 2024 that becomes available for use before 2030, with a smaller boost after that. The calculator applies the 45% first-year rate in every case.

If a vehicle costs more than the federal price ceiling for Class 10.1 ($39,000 before tax for vehicles acquired on or after January 1, 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 ($350 a month for new loans entered into on or after January 1, 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 fall in Class 10.1, and recapture rules do not apply to Class 10.1 passenger vehicles.

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

There is no rule that limits the deduction to a fixed share, such as 80%, of a lease payment. Instead, deductible leasing costs are capped at $1,100 a month before tax for new leases entered into on or after January 1, 2026. The CRA's eligible leasing cost chart also sets a second limit based on the vehicle's list price. The deduction is the lesser of the two limits. The calculator applies both, and it treats the vehicle price entered as the manufacturer's list price.

$\text{Monthly-cap limit} = \$1{,}100 \times \frac{\text{Days Leased}}{30}$

The calculator counts 365 days a year.

$\text{List-price limit} = \text{Total Lease Payments} \times \frac{\$39{,}000}{\max(0.85 \times \text{List Price}, \$39{,}000)}$

The list-price test only lowers the deduction for a vehicle listed above about $45,882 ($39,000 ÷ 0.85). Below that, it equals the full lease payments.

Total cost of leasing

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

where

$\text{Tax Savings} = \min(\text{Monthly-cap limit}, \text{List-price limit}) \times \text{Marginal Tax Rate}$

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 car 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 combined small-business rate, 11.2%.

Buying

Leasing

In this example, buying costs about $4,041 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. The federal net rate for a Canadian-controlled private corporation claiming the small business deduction is 9%. Each province or territory adds its own lower rate on that income. Alberta's small business rate is 2%. Three provinces cut their rates in 2026. The calculator uses the rates for a corporate tax year that begins in October 2026:

• Ontario's rate fell from 3.2% to 2.2% on July 1, 2026, a cut that Bill 97 enacted. A tax year that spans July 1 pays a blend of the two rates.
• Quebec's rate falls from 3.2% to 2.2% for tax years that begin after April 29, 2026. Quebec also requires a test, such as at least 5,500 paid employee hours in the year, for the full small business deduction. The calculator assumes the test is met.
• Newfoundland and Labrador's rate fell to 2% on January 1, 2026 and falls to 1.5% on January 1, 2027. The calculator uses 2%, so it slightly overstates the rate for a year that runs into 2027.

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. Many leases limit yearly distance 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. The calculator works only with income tax. It leaves out GST/HST and provincial sales tax, which follow separate rules.

Is 80% of a lease payment deductible? No. There is no fixed percentage limit on lease deductions. Deductible leasing costs are capped at $1,100 a month before tax for leases entered into in 2026, and the CRA's list-price test can allow less for an expensive vehicle. The calculator applies both limits.

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 in Class 10.1, where recapture does not apply 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 does not apply to Class 10.1 vehicles, which are those priced above the 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.

References

1. Department of Finance Canada. Government Announces the 2026 Automobile Deduction Limits and Expense Benefit Rates for Businesses. 2026 automobile deduction limits
2. Canada Revenue Agency. Guide T4002, Chapter 4 – Capital cost allowance. T4002 Chapter 4
3. Canada Revenue Agency. Accelerated investment incentive. Accelerated investment incentive
4. Parliament of Canada. LEGISinfo: C-15 (45-1), Budget 2025 Implementation Act, No. 1. Bill C-15 status
5. Parliament of Canada. Bill C-15, royal assent text. Bill C-15 text
6. Canada Revenue Agency. Motor vehicle – Leasing costs. Leasing costs
7. Canada Revenue Agency. Corporation tax rates. Corporation tax rates
8. Government of Alberta. Tax, levy, and prescribed interest rates. Alberta tax rates
9. Ministère des Finances du Québec. Bulletin d'information 2026-3 (in French). Quebec information bulletin 2026-3
10. Ontario Ministry of Finance. 2026 Ontario Budget, Annex: Tax Measures and Other Legislative Initiatives. 2026 Ontario Budget annex
11. Legislative Assembly of Ontario. Bill 97, Plan to Protect Ontario Act (Budget Measures), 2026. Bill 97
12. Government of Newfoundland and Labrador. Budget 2026 Delivers Opportunity For All of Us (April 29, 2026). Newfoundland and Labrador Budget 2026 release