What Small Business Owners Should Know about Leasing vs Buying their Car, Corporate Ownership of Vehicles and Deducting Car Expenses
Small business owners who need a vehicle to carry on their business are fortunately able to benefit from a tax deduction for the business use of their car. But given the potential for abuse, the CRA’s rules around vehicle expenses are specific and cover what counts as business use, which expenses are allowed, how to calculate your deduction, and how things differ depending on whether you lease or buy.
While deciding whether to lease or buy a car can be a tough decision for anyone (a Porsche does seem so much more affordable when you lease!), it’s even more challenging for small business owners, who also need to consider the tax implications.
Leasing vs. Buying: The Basics
The key difference is ownership. Leasing usually requires less upfront cash than buying, even if you're financing the purchase. For example, a car that costs $35,000 to buy might cost only $18,000 to lease over three years. Of course, at the end of those three years, you’ll likely have to find another option so it helps to know how comfortable you are with change.
Leasing is typically more expensive in the long run, since a well-maintained vehicle can easily outlast a lease term. (Of course, if you do own your car its always useful to have a trustworthy mechanic.)
Tax Considerations (2024 Limits)
Leased Vehicles
You can deduct up to $900/month in lease payments, for a maximum of $10,800/year.
If your lease payments exceed this amount or are based on a luxury vehicle, a formula may reduce the deductible amount.
Purchased Vehicles
The maximum cost of a passenger vehicle eligible for CCA (Capital Cost Allowance) is $36,000 (plus applicable taxes).
You can't deduct the full amount upfront. Instead, it's depreciated under CCA Class 10 at 30% per year on a declining balance basis (Class 10.1 if the car exceeds $36k).
In the year of purchase, only 50% of the normal CCA can be claimed (the half-year rule).
For example, in year one: $36,000 × 30% × 50% = $5,400
Year two: 30% of the undepreciated balance, and so on.
If the vehicle is financed, you can deduct interest—but only up to $300/year.
Operating Costs
Whether you lease or buy, the most common expenses that you can deduct:
Fuel
Insurance
Repairs and maintenance
Licensing and registration
Parking (for business purposes)
Tolls
Important: You can only deduct the portion used for business, so maintaining a vehicle logbook is essential. There are a number of apps that are available or you can simply create a spreadsheet or record it in a notebook. Make sure to track the date, kilometers driven, and purpose of each business trip.
If You’re Incorporated:
The company owns or leases the asset and makes the payments.
Financed/purchased vehicles can be depreciated up to the maximum amount which is $36,000 in 2024.
If the car/vehicle is leased, then the payments can be deducted up to the maximum amount of $900 (and corresponding to the maximum cost indicated above).
You must track personal use of the vehicle and report it as a taxable benefit on your T4 (or repay the company for personal use).
This creates more paperwork and often results in higher taxes unless the car is used primarily for business.
Alternatively, the corporation can reimburse you using the CRA’s per-kilometre allowance, which in 2025 is:
$0.72/km for the first 5,000 km
$0.66/km after that
In this case, it doesn’t matter whether you lease or buy since the reimbursement is based on distance driven, not actual costs.
Note: Unincorporated businesses can’t use the per km reimbursement method since you’d be reimbursing yourself.
Lease or Buy (from a Tax Perspective)?
As with many of these decisions, there’s no one-size-fits-all answer. Some considerations:
Buying is usually more cost-effective in the long run, but your deduction is spread over time.
Leasing offers bigger deductions in the short term but generally costs more overall.
If your corporation reimburses you per km, you can avoid extra administration and can simply use your personal car.
Want to Simplify Your Taxes?
📝 Stay Organized
Get your free Small Business Tax Return Checklist to help you gather the key documents and information needed to prepare your return.
📘 Learn the Essentials
Check out my Small-Business-Tax-Resources for clear, practical guidance on Canadian small business taxes written specifically for self-employed individuals and small business owners in Canada.
🎥 Looking for Personalized Guidance
Book a consultation to get your tax questions answered and receive advice customized to your unique situation.
