Company Cars: Should You Buy or Lease?

UPDATE (January 13, 2026): This article has been updated to reflect changes in legislation, regulations, and accounting practices since the original date of publication (September 16, 2019).

Deciding whether to lease or buy a vehicle for your business isn’t always straightforward. Buying can provide greater flexibility and often results in a lower long-term cost of ownership. Leasing, on the other hand, can offer lower monthly payments, potential tax advantages, and the ability to upgrade your vehicle every few years.

Beyond personal preference, there are three key factors to consider.

Monthly cash flow

If maintaining strong cash flow is a priority, leasing may be the preferred option. Lease payments are typically lower than loan payments because the vehicle retains residual value and is returned to the lessor at the end of the lease term. This can help preserve working capital for other areas of your business.

Purchasing generally requires higher monthly payments or a larger upfront investment, but it also allows you to build equity in the vehicle over time.

How much you drive

Expected mileage is an important consideration. Lease agreements usually include annual mileage limits, and exceeding those limits can result in additional charges. While the specific limit varies by lease and dealer, frequent or high-kilometre driving can make leasing more expensive than originally anticipated.

If you own the vehicle, there are no mileage restrictions, giving you the flexibility to drive as much as your business requires without penalty.

Tax considerations

Tax treatment is often one of the biggest factors when comparing leasing and buying.

For leased vehicles, the CRA limits the portion of monthly lease payments that can be deducted. For new leases entered into on or after January 1, 2025, the deductible lease cost limit is $1,100 per month (before tax). Because of these caps, higher-priced vehicles can sometimes provide more favourable deductions when leased rather than purchased, depending on the terms.

For owned vehicles, the amount eligible for capital cost allowance (CCA) is also capped. For passenger vehicles in Class 10.1, the CCA ceiling is $39,000 (before tax) for vehicles acquired on or after January 1, 2026 (it was $38,000 for acquisitions on or after January 1, 2025). Passenger vehicles generally fall into a class with a 30% declining-balance CCA rate, and first-year claims are subject to specific rules that can restrict the initial deduction. Interest on vehicle loans may also be deductible when the vehicle is used for business purposes.

Special rules apply to zero-emission vehicles, such as fully electric and certain plug-in hybrid vehicles. These vehicles may qualify for a higher capital cost limit, and for 2025 the CCA ceiling for certain zero-emission passenger vehicles is $61,000 (before tax), which can significantly affect the after-tax cost of ownership.

Because these limits are indexed and can change, it’s worth confirming the current thresholds before deciding whether to lease or buy.

Making the right choice

In many cases, purchasing a vehicle provides greater long-term flexibility and can be more cost-effective over time. Leasing can still be an attractive option if you’re focused on lower monthly payments, potential tax efficiencies, and the ability to replace your vehicle every four to five years.

The right decision depends on your business’s cash flow, driving habits, and tax position. For a tailored comparison and a review of the current tax rules, contact your DMCL advisor before committing to a lease or purchase.