Are Equipment Loan Payments Tax-Deductible in Canada?

When Canadian owners ask if equipment loan payments are tax-deductible, the answer is: the interest usually is, the principal isn’t—you recover principal over time via capital cost allowance (CCA). With leases, the periodic lease payments are generally deductible to the extent the equipment is used to earn business income. On top of this, GST/HST paid on eligible business use is typically recoverable through input tax credits (ITCs) if you’re registered.

This guide explains how the rules work in practice, how they affect your real monthly cost, and how to structure financing to keep cash flow healthy without creating tax surprises. Use our calculator to compare scenarios, or explore loans vs leases side-by-side.

Quick view: loan vs. lease tax treatment

Explore options on the Equipment Financing hub, and run your numbers in the calculator.

How CCA works on a loan

With a loan, you capitalize the equipment and claim CCA annually by class. The class depends on the asset (e.g., trucks vs. manufacturing machinery), but the principle is the same:

• Your payment contains principal + interest. Only interest is an expense.
  
  
• Principal adds to the undepreciated capital cost (UCC) pool and is recovered over time via CCA.
  
  
• The timing and rate of CCA affect your after-tax cost just as much as the nominal interest rate.
  
  

If your cash flow is tight early on, consider lengthening term or exploring a lease with a modest residual to reduce monthly outlay—then use projected buyout timing to plan your CCA path after purchase.

Leases: why deductible payments aren’t the whole story

Leases shift some principal to end-of-term through a residual (e.g., $10, 10%, or FMV). That often lowers your monthly and simplifies tax reporting (you expense the payments, business-use portion). But the total cost can still be higher or lower than a loan depending on residual, fees, and term. Always compare effective cost and cash-flow fit:

• If you want the lowest monthly with an ownership path, a residual-based lease can help.
  
  
• If you want straight equity build and clear CCA, a loan is often better.
  
  
• If purchases are frequent, an equipment line of credit can simplify repeat acquisitions (draw, then convert to term).
  
  

GST/HST and input tax credits (ITCs)

If you’re GST/HST-registered and the equipment is used to earn income:

• On loans, you typically claim an ITC for the GST/HST paid on the purchase (business-use portion).
  
  
• On leases, you typically claim ITCs on the GST/HST built into each lease charge (business-use portion).
  
  
• Track business vs. personal use (if any) and prorate accordingly. Good records matter at filing—and during reviews.
  
  

Matching structure to your industry

Different sectors face different cash-flow and tax realities:

• Transportation & Trucking: Heavy-duty tractors and trailers commonly pencil well under either structure. If downtime risk is high, a lease with predictable payments and an upgrade path can be attractive. See Transportation & Trucking.
  
  
• Construction & Contractors: Usage hours and seasonality drive the choice. A lease with residual can reduce the monthly during slower months; a loan maximizes equity if you’ll keep the excavator or loader long-term. See Construction & Contractors and our Construction Equipment expertise.
  
  
• Manufacturing & Wholesale: Heavier tickets (CNC, processing) favour careful CCA planning. You can blend a loan with asset-based lending for receivables/inventory. See Manufacturing & Wholesale.
  
  
• Hospitality & Food Service: Tech refresh cycles (POS, refrigeration) make leases compelling for predictability and upgrades. See Hospitality & Food Service.
  
  
• Medical, Dental & Wellness: Revenue-linked devices often benefit from predictable lease expense; larger imaging units may warrant loan + CCA planning. See Medical, Dental & Wellness.
  
  
• Farming & Agriculture: Align payments and deductions to harvest cycles; consider seasonal/skip schedules. See Farming & Agriculture.
  
  

Are you looking for a truck? Look at our used inventory. Mehmi also sells equipment directly.

Structuring for the best after-tax outcome

1. Decide ownership vs. flexibility: If you’ll keep the asset for years, a loan plus CCA may be optimal. If you value upgrades or a lower monthly, compare a lease with a sensible residual.
   
   
2. Model the whole picture: Use the calculator to compare 36/48/60/72-month terms, residuals, and down payments.
   
   
3. Reduce upfront pain without losing tax efficiency:
   
   
   
   • If cash is tight, consider refinancing & sale-leaseback on owned gear to fund the new asset (and keep it in service).
     
     
   • Blend capex with operating liquidity via Working Capital Loan or Invoice/Freight Factoring.
     
     
   • For multiple purchases across the year, stand up an equipment line of credit.
     
     
4. Document everything: Keep invoices, payment schedules, insurance, and use logs. If there’s any personal use, allocate clearly.
   
   
5. Coordinate with your accountant: Align CCA claims, ITCs, and year-end timing to your tax plan.
   
   

Common mistakes (and easy fixes)

• Confusing payment with deduction: On loans, only interest is expensed; use CCA for principal recovery.
  
  
• Ignoring residual math: A higher residual lowers monthly but may increase total cost. Check resale assumptions and your upgrade plan.
  
  
• Not claiming ITCs correctly: Register and track business use to recover GST/HST where eligible.
  
  
• Over-long terms vs. useful life: Don’t finance past the asset’s productive life.
  
  
• Under-documenting private sales: Private bills of sale and serial/condition details matter; these deals may still be financeable through loans or leases.
  
  
• Skipping alternative structures: If a bank says “no,” in-house financing or a sale-leaseback can bridge the gap.
  
  

Short case study (anonymized)

A GTA carrier needed a used day cab and a 53’ reefer. The bank offered a straight loan but the monthly strained ramp-up cash flow. We modeled:

• Loan with CCA (higher monthly, straightforward ownership), and
  
  
• Lease with 10% residual (lower monthly, deductible payments).
  
  

We paired the lease with a small invoice factoring facility for first-mile receivables. The carrier chose the lease for payment relief and predictability; the buyout was scheduled for month 60 when seasonal cash is strongest. Approval cleared in 48 hours; the fleet activated the lane on time.

What to do next

• Price your asset and test terms in the calculator.
  
  
• Compare loans, leases, and equipment LOC.
  
  
• If you own gear, consider refinancing & sale-leaseback to lower upfront cash.
  
  
• Feel free to contact our credit analysts to tailor a structure that fits your cash flow and tax plan: Contact Us.
  
  

FAQ

Are equipment loan payments tax-deductible?
The interest portion generally is; principal is not—you recover it via CCA over time.

Are equipment lease payments tax-deductible?
Generally yes, to the extent of business use. Expect a buyout at term end (e.g., $10, 10%, or FMV) if you plan to keep the asset.

Can I claim GST/HST back on financed equipment?
If registered and eligible, you typically claim ITCs on the business-use portion (upfront on purchases; per-payment on leases).

Is leasing always cheaper than a loan after tax?
Not always. Leasing often lowers monthly, but total cost depends on rate, fees, term, and residual. Model both before deciding.

What if my credit is mid-600s or I’m a startup?
Structure matters. Consider a lease with residual, more equity, or in-house financing. If you own gear, a sale-leaseback can help.

Can I finance used or private-sale equipment and still deduct properly?
Yes—documentation and program fit are key. Start with Equipment Loans or Equipment Leases and confirm Eligible Equipment.

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Note: This article is informational only and not tax advice. Confirm specifics with your accountant.