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Lease or buy

 The question whether to lease a vehicle or simply buy it is one that we hear most often from our clients. The answer, unfortunately, is not a simple one. You need to compare lease and financing rates, look at the amortization of the vehicle if it is owned and its value for resale purposes. Last, but by far not least element to consider is the lease buyout price, often the key element in determining the value of the deal. Your personal (or business) cash flow is also not to be ignored.


 Let’s look at the example straight from an advertisement of a major car dealer. A vehicle can be purchased for $25,400 or leased for $268 a month for 60 months with a $2,950 downpayment. (All numbers before HST). Your total payments for the car over 60 months will be $19,030. This is clearly less than the purchase price, but at the end of 60 months you do not own the car.

 Now, let’s see what will be the cost of the car over the 60 months if you owned it. If you needed to finance that vehicle, assuming the financing rate through the dealership of 2.5% for new vehicles, your vehicle will then cost $25,400 plus financing charge of $1,647 for the total of $27,047 and your monthly loan payments will be higher at $450.78. We can assume the amortization rate of 30% (15% in the first year), which is a prescribed rate by Canada Revenue Agency. Whether your vehicle depreciates faster or slower, this rate is relevant especially for business owners, as it is the rate at which you can claim your business deduction. Comparing to the term of the lease, in 5 years, the vehicle will be amortized down to $5,184. So at the end of 60 months if you sell or trade in the vehicle for a conservative $5,184 your total cost is now down to $21,863, which is just slightly over the leasing cost before buyout. Your buyout price would have to be equal to $21,863 minus $19,030, i.e. $2,833, to make lease option equivalent in value to purchase.

 For business owners, the important question is: which option gives me more deductions. Assuming that the vehicle is used 100% for business purposes based on the above example, the leasing option will allow you a full write of the value of lease, ie., $19,030 over 60 months. The ownership option will give you a deduction based on amortization rate, which for 5 years will amount to 20,216. In addition, you can claim interest expense on the car loan of $1,647. This is a slight advantage in write offs, in addition to the fact that at the end of the 5th year you still own the vehicle. However, the older the vehicle the less amortization you can claim. In the above example, after 7th year you will be claiming a very small annual amortization of less than $1,000. It will make sense then to replace the vehicle and take advantage of higher write offs available on newer cars.

 For both business owners and others, lease is always a more expensive option, mostly due to the buyout price structure. If you consider keeping the vehicle for a short period of time, up to 5 years, your business deductions will be similar or even higher with the purchase option. However, business write offs will be much lower for older vehicles. From the cash flow however, the lease may result in lower cash outlays monthly than financing option.


Eva Kupiec, CMA

Beata Kurpiewski, CGA

Principals of Professional Accounting Office at 3461 Lakeshore Blvd. W.




Tel. 416-521-9188
Beata & Eva
We are an accounting office with two practitioners and staff.
We work closely with our individual and business clients to help them achieve tax savings and use accounting system to their advantage.

We offer:

  • Full service accounting for small and medium companies
  • Personal tax planning, including estates and trusts

  • Business consulting