Introduction

An incorporated professional who needs $80,000 of new equipment — clinical, construction, architectural, or tech — faces a decision that is partly financial (cash flow, interest cost) and partly tax (how quickly can the cost be deducted, and in what form). The lease vs. buy comparison is not just a financing decision; the tax treatment of each option affects the net cost.

Buying: The CCA and Immediate Expensing Route

When the corporation purchases equipment outright or with financing, the equipment is capitalised on the balance sheet and depreciated through the CCA system — or expensed immediately under the immediate expensing rules (as discussed in Article 148).

The deductions:

In the year of purchase: CCA at the applicable rate (typically 20% for Class 8 equipment, with the half-year rule reducing the first year to 10%) — or 100% immediate expensing if eligible and beneficial.

In subsequent years: CCA at the prescribed rate on the declining balance.

The advantage of buying: The corporation owns the asset. On sale or trade-in, any proceeds reduce the CCA class balance (recapture is income; a terminal loss is deductible). If the equipment is sold for less than its tax cost, there is a loss. If sold for more than its UCC, recapture is income.

The financing cost: If the equipment is purchased with borrowed funds, the interest on the financing is deductible as a business expense — separate from the CCA deduction.

Leasing: The Operating Lease Route

When the corporation leases equipment under an operating lease — payments for the right to use the equipment without ownership — the lease payments are fully deductible as a business expense in the year paid.

The deductions:

Each monthly lease payment is a current deduction — fully deductible against corporate income in the year of payment. There is no capitalisation, no CCA class, no depreciation schedule.

The advantage of leasing: Immediate full deductibility of each payment. No capital at risk if the equipment depreciates faster than the CCA schedule. Easier cash flow management — fixed monthly payments vs. a lump-sum purchase.

The disadvantage: The corporation does not own the asset. At the end of the lease term, there is no residual value unless a buyout option is exercised. The total cost of leasing over several years typically exceeds the purchase price.

The Finance Lease vs. Operating Lease Distinction

A lease that is structured as a financing arrangement — where the lessee has the risks and rewards of ownership (purchase option at a nominal amount, lease term covers substantially all of the asset's life) — is treated as a financed purchase for tax purposes, not an operating lease. The corporation capitalises the asset and claims CCA, and the financing cost (interest component of the payments) is separately deductible.

Mischaracterising a finance lease as an operating lease — and deducting the full payment as a lease expense rather than the interest component only — is a common CCA classification error.

The Practical Comparison

For a $80,000 equipment purchase:

Buy with immediate expensing: $80,000 deduction in year one. Corporate tax saving at 12.2% = $9,760. The asset is owned.

Lease at $1,800/month for 48 months: $21,600 deductible per year. Corporate tax saving per year = $2,635. Over 4 years, total tax savings = $10,540. Total lease cost = $86,400. The asset is not owned at the end.

The buy-with-immediate-expensing option produces almost the same total tax saving as leasing, but compresses the saving into year one — providing earlier tax benefit — and results in asset ownership. Unless the lease's cash flow advantage is critical, the immediate expensing route is generally superior for a CCPC with strong taxable income.

When to Speak With a CPA

Before signing a lease agreement or making a large equipment purchase, the tax comparison should be run at the corporation's specific income level, in the context of that year's CCA class strategy. The optimal choice depends on the income level, the immediate expensing limit remaining, and the cash flow position.

Rotaru CPA advises incorporated clients on equipment acquisition decisions as part of year-end tax planning. Book a consultation to model the lease vs. buy decision for your next major acquisition.