Company Car: Tax Benefits of Buying vs Leasing a Vehicle – A Complete Guide by a Montreal CPA Firm Near You

Deciding whether your corporation should buy or lease a vehicle is one of the most

common—and misunderstood—tax decisions Canadian business owners face. While

many assume leasing is always better, or buying is more tax-efficient, the reality is far

more nuanced. The tax impact depends on the vehicle type, purchase price, business-

use percentage, financing structure, and personal-use implications. CRA applies strict

rules to corporate-owned vehicles, and errors can lead to denied deductions, increased

income inclusions, or unexpected taxable benefits such as standby charges and

operating benefits. Understanding the tax benefits of buying vs leasing a company

vehicle in Canada is essential to make the most cost-effective and compliant decision.

Legal and Regulatory Framework

The tax treatment of corporate vehicles in Canada is governed by multiple sections of

the Income Tax Act and CRA guidelines:

Buying a Vehicle

When a corporation buys a car:

• It can claim Capital Cost Allowance (CCA) under Class 10 or 10.1, with limits for

passenger vehicles.

• CCA Class 10.1 applies if the cost exceeds CRA’s passenger vehicle limit (e.g.,

around $36,000 + taxes).

• Interest on financing may be deductible, subject to CRA limits.

• Fuel, insurance, repairs, and maintenance are deductible based on business-use

percentage.

• When selling the vehicle, recapture or terminal loss rules apply under section 13.

Leasing a Vehicle

When a corporation leases a vehicle:

• Lease payments are deductible up to CRA’s monthly lease limit.

• The limit prevents corporations from deducting luxury vehicle leases beyond certain

thresholds.

• Insurance, fuel, and maintenance remain deductible.

• No CCA is claimed because the corporation does not own the asset.

Personal Use Rules

If the vehicle is made available to a shareholder or employee, CRA may assess:

• Standby charge – a taxable benefit based on the cost of the vehicle or lease

payments.

• Operating benefit – for personal-use fuel or operating costs paid by the corporation.

Corporations must track personal vs business kilometres precisely to calculate these

benefits.

These rules form the core framework for evaluating buying vs leasing a vehicle in

Canada.

Key Court Decisions

Several important court rulings demonstrate how CRA enforces vehicle tax rules:

In Savoie v. Canada, CRA successfully applied a large standby charge because the

shareholder could not prove limited personal use; the court emphasized the burden of

proof lies on the taxpayer.

In McNeill v. The Queen, the court ruled that a vehicle is “available for personal use”

even if not actually used, triggering a standby charge.

In Allen v. Canada, lease deductions were denied because the taxpayer failed to

document business use properly.

In Kuhlmann v. The Queen, CRA’s denial of CCA was upheld due to insufficient

evidence that the vehicle was used primarily for business.

These decisions highlight that documentation and business-use tracking are critical.

Why CRA Targets This Issue

CRA frequently audits corporate vehicle claims because they are prone to abuse. CRA

targets:

• vehicles written off as 100% business use

• inadequate mileage logs

• shareholders using corporate vehicles personally

• excessive lease deductions beyond CRA limits

• vehicles owned by corporations with little active business

• purchase prices structured to avoid CCA limits

• missing standby charge calculations

Because personal-use vehicles are a common area of non-compliance, CRA enforces

these rules aggressively.

Mackisen Strategy

At Mackisen CPA Montreal, we help business owners determine whether buying or

leasing provides the best tax benefit while maintaining compliance. Our comprehensive

approach includes:

• analyzing cash flow, financing costs, and corporate tax rates

• calculating the after-tax cost of buying vs leasing

• applying CCA Class 10/10.1 limits and lease deduction caps

• modelling standby charge and operating benefit consequences

• structuring reimbursements to reduce taxable benefits

• advising on fleet vehicles vs personal vehicles used for business

• creating audit-proof mileage log systems

• planning future resale implications to avoid recapture

Our tailored planning ensures you choose the most tax-efficient structure for your

corporate vehicle.

Real Client Experience

A real estate brokerage purchased several vehicles and claimed 100% business use.

CRA denied most deductions due to missing mileage logs. We reconstructed usage

patterns, implemented tracking systems, and restored allowable deductions.

Another client leased a luxury SUV believing lease payments were fully deductible. CRA

capped the deduction using monthly lease limits. We corrected the filing and

restructured the next lease to maximize tax benefits.

A manufacturing company provided a vehicle to its owner without calculating standby

charges. CRA reassessed the shareholder personally. We recalculated benefits,

negotiated adjustments, and implemented proper reimbursement strategies.

These real cases show why buying vs leasing decisions must be supported by proper

documentation and tax planning.

Common Questions

Business owners often ask whether leasing is automatically better. Leasing offers

flexibility but is limited by CRA caps.

Others ask whether purchasing a vehicle allows faster write-offs. Yes—CCA may

provide accelerated deductions, depending on the vehicle class.

Some ask whether electric vehicles receive special treatment. Yes—certain zero-

emission vehicles qualify for enhanced CCA rates.

Another question: Can personal vehicles be used and reimbursed? Absolutely—paying

mileage from the corporation may be the most tax-efficient option.

These questions highlight the importance of understanding the tax differences between

buying vs leasing in Canada.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps

Canadian businesses make informed, tax-efficient decisions about corporate vehicles.

Whether you are buying, leasing, or reimbursing mileage, our expert team ensures

precision, transparency, and protection from CRA audit risk.