Equipment lease tax treatment in Canada: questions to ask

A lease, conditional sale, and loan can be treated differently. The legal form, purchase option, transfer of ownership, and economic substance of the agreement all matter. The label at the top of the document is not the whole answer.

Depending on the structure, payments or depreciation and interest may be relevant to your tax reporting. Sales taxes and timing can also affect cash flow. Your accountant should review the actual agreement before you rely on a deduction.

Retain the signed agreement, invoices, payment schedule, equipment description, and any end-of-term option. Clean records make it easier for your accountant to apply the correct treatment and support the position taken on a return.

We explain financing costs and terms in writing. We do not provide tax advice. Ask your accountant how a proposed structure applies to your business before you sign anything.