Equipment financing vs. leasing in Canada: which is right for you?
Buy it with a loan or lease it? The right answer depends on how long you'll keep the equipment, your cash flow and your tax picture.
Whether it's a truck, an excavator, a CNC machine or a dental chair, there are two main ways to pay for equipment over time: an equipment loan or a lease. Both protect your cash. They work very differently on ownership and taxes.
Equipment loans
You own the equipment from day one, and the lender holds it as security until it's paid off.
- Tax: you generally claim depreciation through capital cost allowance (CCA) and deduct the interest portion of payments.
- Good for: equipment you'll keep for most of its useful life.
- Down payment: often required, though strong files sometimes finance close to the full price.
Leases
The leasing company owns the equipment and you pay to use it. Leases come in two broad flavours:
- Buyout leases (often $1 or a set amount at the end). Functionally close to a loan, and often treated like a purchase for tax purposes.
- Fair market value leases. Lower payments, and at the end you return the equipment, renew, or buy it at market value. Good for equipment that goes out of date quickly.
Lease payments on a true operating lease are generally deductible as a business expense. HST is charged on each lease payment rather than all at once on the purchase.
A quick note on CCA
CCA rates depend on the equipment's class. Most general equipment falls in a class that depreciates at 20% a year, while heavy trucks and tractors used for hauling freight sit in a faster class. These details can change, and the right structure depends on your income, so talk to your accountant before you choose.
How to decide
- Keeping it 7+ years? A loan or buyout lease usually costs less overall.
- Upgrading every few years? A fair market value lease can keep payments low and your equipment current.
- Tight on cash right now? Leases often need less upfront.
- Buying used or from a private seller? Many lenders do this, but not all. It's worth asking before you commit to a seller.
Your advisor can put a loan and a lease side by side on the same piece of equipment so you can compare the real monthly and total cost.
This guide is general information, not financial, tax or legal advice. Programs, rules and rates change, so confirm details for your situation with a qualified professional.