Buy or rent a vehicle: the tax perspective for small business owners — CPA Firm Near You, Montreal

Introduction

For many small business owners in Quebec, the company vehicle is an essential tool: client trips, deliveries, site visits, equipment purchases, and more. But the big question always comes back: is it more tax advantageous to buy or lease a vehicle? The tax rules from the CRA and Revenu Quebec are strict, and a poor decision can cost thousands of dollars in lost deductions. This guide explains the tax impacts of each option and how a CPA near you in Montreal can help you choose the best strategy.

Legal and Regulatory Framework

According to the Income Tax Act and the Quebec Tax Act:

If you buy a vehicle:

• The vehicle becomes a depreciable asset (category 10 or 10.1).
• You can deduct the capital cost allowance (CCA) based on the category.
• Interest on financing is deductible up to certain limits.
• You can claim operating expenses (fuel, repairs, insurance).
• The personal portion must be excluded.

If you lease a vehicle:

• Monthly lease payments are deductible up to tax limits.
• Maintenance, insurance, fuel, and repairs are also deductible.
• No depreciation is calculated, but the deduction limits are strict.
• The personal portion must also be excluded.

In both cases, only the kilometers used for business are eligible. A detailed logbook is mandatory.

Important Court Decisions

The courts have ruled that:
• Taxpayers without a logbook often lose the majority of their deductions.
• Luxury vehicles exceeding the maximum value imposed by the CRA face stricter limits, both for depreciation and leasing.
• Businesses cannot deduct costs related to personal use by owners or employees.
• A misclassification (purchase vs lease) without adequate justification can lead to a tax reassessment.

Judges remind that documentation, invoices, contracts, and proof of use are essential.

Why the CRA and Revenu Quebec Closely Examine Company Vehicles

Vehicles are one of the most audited items because:
• Expenses are often significant
• The personal portion is frequently miscalculated
• Maintenance receipts are missing
• Tax limits are not respected
• Businesses mix personal and professional use
• Logbooks are non-existent or approximate

Auditors compare total kilometers, business kilometers, fuel invoices, lease contracts, and bank payments.

Buy or Lease: What to Choose?

Buying is generally advantageous when:

• You keep the vehicle for several years
• You drive a lot of business kilometers
• The vehicle retains a good resale value
• You want to maximize the deduction via depreciation

Leasing is generally advantageous when:

• You prefer lower monthly payments
• You frequently change vehicles
• You want to avoid depreciation
• You use a moderately priced vehicle (to avoid limits)

Mackisen Strategy

At Mackisen CPA Montreal, we help small business owners to:
• Compare the tax impact of buying vs leasing
• Calculate depreciation and leasing limits
• Determine the actual business use portion
• Prepare compliant logbooks
• Optimize vehicle expenses (insurance, repairs, tires, fuel)
• Prevent reassessments for taxable benefits to employees

We also integrate GST/QST rules into the calculations for purchases and leases.

Real Client Experience

A renovation entrepreneur purchased a van without knowing the limits of category 10.1. CRA limited the depreciation deduction, creating a higher tax balance than expected. We corrected the classifications and established a strategy for their future vehicles.
Another client was leasing a luxury vehicle whose payments exceeded tax limits; we recalculated the allowed deductions and implemented a documented business use policy.

Frequently Asked Questions

What expenses can I deduct?

Fuel, repairs, insurance, maintenance, parking, tires, depreciation (purchase) or payments (lease).

Do I need to keep a logbook?

Yes, it is mandatory to avoid the CRA rejecting your deductions.

Does a luxury vehicle reduce the deduction?

Yes. The CRA imposes maximum cost limits for depreciation and leasing.

GST/QST: how to recover them?

Based on actual business use. The rules differ for purchases and leases.

Why Mackisen

With over 35 years of combined experience as CPAs, Mackisen CPA Montreal helps SMEs optimize their vehicle expenses while adhering to the strict rules of the CRA and Revenu Quebec. We ensure accuracy, compliance, and protection against audits.