Equipment Leasing in Canada

Equipment leasing lets a Canadian business use machines, vehicles, or technology while paying for them month by month instead of all at once. You pay to use the asset rather than buy it, much as you might lease office space rather than buy the building.

What is Equipment Leasing?

An equipment lease is a contract in which the lessor owns an asset and the lessee, your business, pays to use it for a set term. The lessor keeps ownership. You keep the use of the equipment and the revenue it helps you earn. Leasing is a large part of the Canadian economy. Statistics Canada reports that “The commercial and industrial machinery and equipment rental and leasing industry generated $17.5 billion in operating revenue in 2023, up 8.5% from 2022.” (Statistics Canada)

That ownership distinction drives almost everything else. Because you never pay the full purchase price, your cash stays free for payroll, inventory, or the next job. A bakery can run a new oven, a contractor can put a skid steer on site, and a clinic can install an imaging machine without draining the bank account.

Leasing is used in nearly every sector in Canada: construction equipment, transport trucks, manufacturing lines, farm machinery, dental chairs, and the laptops in the back office.

Types of Equipment Leases

Equipment leases fall into two main types, and the difference shows up at tax time and on your balance sheet.

• An operating lease, sometimes called a true lease, is a lease for part of the equipment's useful life. The lessor keeps ownership, maintenance is often included, and when the term ends you return the equipment, renew, or buy it at fair market value.
• A capital lease, or finance lease, is a lease that works like a loan. You take on most of the risks and rewards of ownership, and there is often a token buyout at the end. The best-known version is the $1 buyout lease.
• A sale-leaseback works in reverse. You sell equipment you already own to a leasing company and lease it back, turning its equity into cash.

Benefits of Equipment Leasing

The main benefits of equipment leasing are lower upfront cost, fixed monthly payments, operating lease payments that are generally deductible as a business expense in Canada, and the option to upgrade when the term ends instead of holding equipment that has dated. There is a separate guide to the benefits of leasing equipment, including when the tax advantage applies.

Disadvantages of Equipment Leasing

Leasing usually costs more than buying over the full term. You build no equity, and unless you exercise a purchase option, you end up owning nothing. Lease agreements can also limit how you modify or use the equipment, hold you to the commitment when your needs change, and charge penalties for ending early. Read those clauses before you sign.

Leasing vs. Buying

Leasing usually suits a business that wants current technology, needs to protect cash, or expects the equipment to age out early. Buying usually suits a business that will run the asset for years, has the capital, and wants the equity. For example, a $200,000 excavator leased at $4,000 a month for five years costs $240,000 in payments. That is more than the purchase price, but it keeps $200,000 in the business on day one. The equipment lease vs. loan vs. buying comparison works through the full math.

How to Lease Equipment in Canada

Leasing equipment in Canada follows a set path: define the equipment you need, compare quotes from leasing companies that know your industry, apply with your financial statements, review and sign the lease agreement, then take delivery from the dealer or seller and make fixed payments until you buy, renew, or return the asset. The guide to how equipment leasing works covers each step, and the guide to how to qualify for equipment financing covers what lenders review.

Lease Agreements and Terms

An equipment lease agreement is the contract that sets the term, payment schedule, rate, who pays for maintenance and insurance, the end-of-lease purchase option, and the cost of ending early. There is a separate guide to equipment lease agreements, and another on how long equipment leases run (most run 24 to 84 months).

Factors to Consider Before Leasing Equipment

Before you sign, answer five questions:

1. How long will you use the equipment, and how quickly will it date?
2. Can the business carry the lease payments through a slow quarter, not just a strong one?
3. What do the lease terms say about maintenance and your options at the end?
4. How do rates from different leasing companies compare?
5. Do you plan to return, renew, or buy the equipment when the term ends?

A tax advisor can tell you how the numbers work out under Canadian tax law in your province.

If you are weighing leasing against a loan or line of credit, the guide to equipment financing lays out the options. Ready to see your own numbers? Apply for equipment financing or try the lease calculator.

Frequently Asked Questions

What types of equipment can be leased?

Almost any business asset: construction equipment, manufacturing machinery, medical devices, restaurant equipment, vehicles, office furniture, and IT equipment. A leasing company that knows your type of equipment will value it and structure the lease better than a generalist.

How are lease payments determined?

By the equipment's value, the lease term, the interest rate, and the residual value the lessor assigns at the end. Your credit history and your business's financial health also affect the payment. That is why two companies leasing the same machine can get different quotes.

What happens at the end of the lease term?

You return the equipment, renew the lease, or buy the asset. Buying is an option only if your lease includes a purchase option, at fair market value or a price fixed in advance.

Are lease payments tax-deductible in Canada?

Yes, for operating leases. Operating lease payments are generally deductible as a business expense. With a capital lease, you claim capital cost allowance plus interest instead. Your lease wording and your province both affect the answer, so confirm with a tax professional before you file.

What credit score do I need to lease equipment?

Around 650 or higher generally gets you approved, and on better terms. Lenders also weigh time in business and the equipment itself. Many work with newer businesses or owners whose credit is still building, especially when the equipment holds its value well.