Both leasing and purchasing a vehicle can generate tax deductions for Canadian business owners, but they work differently. If you lease, you deduct the full lease payment as a business expense. If you purchase, you claim depreciation (capital cost allowance or CCA) on the vehicle's value plus deduct operating costs like fuel and insurance. Neither approach is automatically better, the better choice depends on your income level, expected vehicle lifespan, and how much you drive for business. When you lease a vehicle for business purposes, the entire monthly lease payment is deductible as a business expense. There is no need to track depreciation or calculate capital cost allowance, which makes lease deductions simpler to document and claim. When you purchase a vehicle, you claim: Capital Cost Allowance (CCA) each year on the vehicle's cost Actual operating expenses: fuel, insurance, maintenance, repairs, and registration Interest on a loan used to purchase the vehicle (if applicable) The downside is that purchased vehicles lose value every year, and the CCA claim is capped based on the vehicle's cost at purchase. Once you've claimed CCA, you can't reclaim it if the vehicle is worth less when you eventually sell it.
Lease payments above a certain monthly threshold tied to the CRA's deemed vehicle value limit may not be fully deductible. The deemed value is typically around $30,000 plus GST/HST. Check with the CRA or a tax professional to confirm the 2026 threshold applies to your lease agreement.
No. You can only deduct the business-use percentage of your vehicle expenses. If you drive the car 60% for business and 40% for personal use, you can deduct only 60% of operating costs, fuel, and depreciation. Accurate mileage tracking is essential.
When you sell a vehicle you purchased, you may claim a loss on the sale if it sold for less than the undepreciated capital cost (after subtracting all prior CCA claims). For a leased vehicle, you have no asset to sell, so there is no gain or loss to report.
Yes. Interest on a loan used to purchase a business vehicle is deductible as a business expense. However, the principal repayment is not deductible; only CCA claims apply to the vehicle's cost.
Yes. You should document and report the percentage of business use versus personal use. The CRA may ask for mileage logs or a diary of business trips to verify the percentage you claimed.