Accountant Toronto Discusses Leasing vs. Buying Automobile

Allan Madan, CA
 Feb 21, 2010


As a business owner, have you ever wondered whether it’s more tax efficient to lease or buy an automobile? Seeing that an automobile is one of the biggest purchases that you’ll make, it’s important to get this decision right.

As an Accountant Toronto, I will discuss the tax consequences of leasing vs. buying an automobile for business purposes in Canada.

Leasing an Automobile

The maximum tax deductible amount for an automobile lease is $800 / month + taxes. While this sounds like a very generous limit, there’s a catch. The $800 limit is reduced (through a complex formula) if the manufacturer’s suggested retail price (MSRP) for the automobile is in excess of $40,000 (approximately).

Let’s assume that you have entered into a five year lease for an automobile having a MSRP of $30,000 with a monthly lease amount of $350, including taxes. Therefore, each year you would be entitled to a deduction of $4,200 (i.e. $350 x 12).

Purchasing an Automobile

When purchasing an automobile, the deductible amount (a.k.a. capital cost allowance or CCA) is computed as 30% of the cost of the automobile, on a declining balance scale. In the year of acquisition, only half of the CCA can be claimed.

The cost of the automobile on which CCA is claimed is limited to $30,000 + taxes. Therefore, if you purchase a luxury automobile, for example for $50,000, only $30,000 can be depreciated for tax purposes.

Now, let’s assume you purchase an automobile having a MSRP of $30,000. The CCA (tax deduction) allowed in each years is as follows:

  • Year 1 ($4,500)
  • Year 2 ($7,650)
  • Year 3 ($5,355)
  • Year 4 ($3,749)
  • Year 5 ($2,624)

Leasing vs. Purchasing

In the first few years, the tax deductions are greater for purchasing an automobile as compared to leasing an automobile. However, in the later years leasing an automobile is more advantageous. This is clearly illustrated in the examples provided above.

As such, the answer as to whether buying or leasing an automobile is better must be determined on a case-by-case basis, and cannot be generalized.

To assist in your decision process, I recommend that you compute the total tax deduction over the term of the lease and compare that to the total CCA deductions over the same time period. This direct comparison will allow you to assess whether leasing or buying is more advantageous.

As an Accountant Toronto, I can tell you that non-tax factors that should also be considered when comparing buying vs. leasing an automobile:

  1. The residual value expected on the sale of a purchased automobile
  2. The maximum number of KM allowed per year under the lease contract and any surcharges for exceeding the maximum.
  3. The interest rate implicit in the lease and the interest rate when financing a vehicle purchase


The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.

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Comments 12

    1. Yes, it would work in the same manner, whether you bought a new or used vehicle.

      Allan Madan, CPA, CA
      Tel: 905-268-0150 x 2

  1. I have a small incorporated business. I am buying a car that is 2 years old that will be financed thru the dealer at 0%financing. Does it matter if it’s in my personal name or company name? I also share my car with my 2 sons . If the car goes under the company, then do I need insurance in the company name and how will that affect my boys driving a company car.
    Can you tell me the best way to write off my car?

  2. Thanks for the information. I want to be sure I read this correctly. If I own my own business I can write off 100 percent of my lease provided the car is less than $30,000?

  3. If income is over 200,000 for 2016 (self-employed), and it’s September 2016 now, is it better to buy or lease a vehicle that’s around $50,000 at this point in the year? Average lease amounts are $750-$900 for what I’m looking at.

  4. Hi Madan, I started financing a car $412 per month including all taxes with 0 down. the car will be 30% utilized for business. can you please tell me how to report when filling the tax

    1. Hi, Afree. If you are self-employed, report all car expenses, the KMs driven in the year for business / work and the total KMs driven in the year on form T2125. If you are employed, and have a signed form T2200 (Declaration of Conditions of Employment) from your employer, then report this information on form T777.

  5. If my incorporated business is making around $200K in 2017 and I plan to buy an $80K car, would it be better to buy or lease? The buying option is $3K cheaper due to interest rate offers right now. Thank you

  6. Regarding the previous post “If my incorporated business is making around $200K in 2017 and I plan to buy an $80K car, would it be better to buy or lease? The buying option is $3K cheaper due to interest rate offers right now. Thank you”
    I had the same question… so if it makes sense to buy, are there any tax strategies for the amount of purchase over 30k limit.
    In essence, are there any strategies at all if the incorporated business decides to buy a vehicle over the 30k?

    1. Hi David, to properly answer your question, I will need additional information:
      – lease term
      – residual value of the vehicle at end of lease
      – interest rate for lease
      – amount of monthly lease payment, plus list price of vehicle
      – if you are financing, then I need to know (a) term of loan (b) interest rate (c) purchase price

      If you purchase a vehicle, depreciation cannot be claimed on amounts over $30,000. There are no strategies available to get around this rule.

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