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Fixed buyout leases in Canada can cost less overall than FMV leases when you plan to own the equipment, expect heavy use, and want to avoid end-of-term surprises. The catch: the monthly payment is often higher, so most owners miss the real win.
This guide breaks down how fixed buyout leases work, when they genuinely save money, and how to compare them against FMV in a Canadian tax and resale market context.
Fixed buyout leases are leases where you know the purchase price on day one—for example a 10% buyout, 20% buyout, or $1 nominal buyout. They’re different from FMV leases, where the end price is whatever the market says at the time.
In Canadian equipment leasing you’ll commonly see:
Providers like EasyLease and Canadian Dominion Leasing describe a “fixed purchase option” as a percentage of the original cost (commonly 10%), and “lease purchase” or “dollar-buyout” leases as full-payout structures with a token residual.(Easylease)
Mehmi’s equipment leases use both styles, but only where they genuinely fit how long you’ll keep the asset.
Fixed buyout leases often raise your monthly payment but reduce your overall risk and long-run cost, especially when you keep equipment beyond the lease term.
At a simple level, the lessor calculates payments on:
(Equipment cost – fixed buyout amount) + interest + fees
Compare two structures on $100,000 of equipment over 60 months (hypothetical numbers to show the concept):
Because FMV leases assume a higher residual, the monthly payment can look cheaper. But the unknown buyout at term can turn out to be much higher than 10% if the equipment holds value or replacement costs spike. End-of-lease guides for Canadian SMEs call this out explicitly: residual buyouts are typically 10% of original cost, but FMV buyouts can vary widely based on conditions at expiry.(Thomcat Leasing)
Fixed buyouts “cost less” when:
Mehmi often models this side-by-side in proposals, so you can see the total 5–7-year cost, not just month one.
From a tax point of view, fixed buyout leases often behave more like financed purchases, especially $1 or low-percentage buyouts where you’re effectively paying down the full cost. That can be a good thing if you’re planning around CCA.
High level (your accountant should always confirm for your exact deal):
When a lease is effectively a full-payout with a bargain or token purchase option, tax professionals often treat it closer to a capital/finance lease: the business records the asset, claims CCA, and deducts the interest portion of payments as an expense.(CWB National Leasing)
With a more rental-style FMV lease, you’re usually expensing the full lease payment instead of claiming CCA.(Canada)
Fixed buyouts can be attractive when:
In those cases, the after-tax cost of a fixed buyout lease can be lower than an FMV lease with a similar payment, because you’re aligning tax treatment with how you actually use the asset. BDC’s guidance on buying vs leasing equipment makes the same point: buying is often cheaper over the life of the asset, but cash-flow and tax considerations decide what’s best.(BDC.ca)
Mehmi doesn’t give tax advice, but we always flag where a 10% or $1 buyout may align better with your accountant’s CCA strategy than a pure FMV lease.
Fixed buyout leases don’t always win. But there are repeatable scenarios where they tend to come out ahead on total cost, risk, and practicality.
Fixed buyouts are usually cheaper when you’re financing long-life, revenue-critical equipment you’ll use for many years after the lease ends:
In these cases, your real plan is: “Pay it off, keep it working.” A 10% or $1 buyout:
Canadian leasing guides note that full-payout and bargain-purchase leases are designed for assets with long useful lives, where ownership is the goal.(cdlcorp.ca)
This is exactly where Mehmi sees strong use of fixed buyouts in heavy equipment financing and truck & trailer financing.
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If you know a machine will see heavy use—high kilometres, long hours, tough conditions—an FMV structure can backfire because the equipment’s condition at term is uncertain.
In those cases, fixed buyouts can cost less because:
End-of-lease advice sites warn that residual buyouts and wear-and-tear charges can significantly increase the effective cost of an FMV lease if the equipment is worn more than expected.(Thomcat Leasing)
For a contractor putting 2,500–3,000 hours per year on excavators, or a regional carrier running tractors 200,000+ km per year, fixed buyouts de-risk the future.
FMV leases are great if you want forced discipline around upgrades. They’re less great if you want to decide exactly when to swap a machine.
Fixed buyouts often win when:
That control can absolutely translate to lower real cost, especially in cyclical sectors like construction, forestry, and trucking—where running a fully paid-off unit through a slow season is often the smartest financial move.
Mehmi sometimes couples fixed buyout leases with asset-based lending—using the paid-down equipment as collateral for additional capital when you decide to upgrade.
If the last five years taught anything, it’s that equipment prices can jump—supply chain shocks and inflation hit everything from trucks to medical gear.
In a high-inflation or supply-constrained environment:
This is where fixed buyouts can quietly save a lot of money: not because payments were cheaper, but because the locked-in buyout became a bargain compared to actual resale and replacement costs.
For many mid-sized Canadian SMEs, the deciding factor isn’t the sticker payment—it’s how easily the structure fits their tax and reporting strategy:
If your CPA is building long-term models around CCA rates, principal vs interest, and debt ratios, a 10% or $1 buyout can make that math a lot cleaner—and often cheaper in after-tax dollars.
There are also clear cases where fixed buyouts don’t cost less and can even bite you.
If you know you’ll want the latest version every 3–5 years—think:
…then paying toward full ownership via a fixed buyout often doesn’t make sense.
Canadian equipment leasing guides emphasize that FMV leases shine when you value frequent upgrades and low payments over long-term ownership.(CWB National Leasing)
In these cases, Mehmi often suggests:
If you only need equipment for:
…then locking yourself into a full-payout lease can cost more, especially if you end up selling the asset early at a discount.
In those cases, shorter FMV leases, Rent Try Buy style structures, or even pure rentals can leave you better off than a fixed buyout that assumes long-term use.
You don’t need a CFA to compare leases—you just need a simple checklist and a calculator.
For each quote, write down:
Remember that a “fixed purchase option” of 10% means exactly that: 10% of original purchase cost at term, not 10% of the remaining balance.(Easylease)
For FMV quotes, do a sanity check:
Even if you only get rough numbers, this helps you compare a realistic FMV buyout against a fixed 10% or $1 buyout.
For each structure, calculate:
You may find that the higher-payment 10% or $1 buyout is actually cheaper or similar overall, but with less end-of-term risk than an FMV lease whose buyout could swing with the market.
Mehmi’s equipment financing team does this math with clients every day, often combining the numbers with their calculator so everyone can see the comparison in plain dollars.
Mehmi tends to use fixed buyouts as a deliberate tool, not a default:
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If you’re a vendor, Mehmi’s vendor program can standardize a small menu of FMV and fixed buyout options that your reps can quote confidently, knowing they’ll pass underwriting and make sense for your customers.
For owners who want a broader toolbox—equipment plus cash-flow support—we can also combine leases with other business loan products when that’s genuinely in your best interest.
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Business: GTA-based pavement contractor
Assets: Two used tandem dump trucks and one new paver
Goal: Keep monthly payments manageable while building long-term fleet equity
The contractor received two sets of quotes from different lessors:
On paper, the FMV option looked friendlier to cash flow.
When the contractor came to Mehmi, we built a simple five-year comparison:
Using conservative assumptions, we estimated that:
Against that, a 10% fixed buyout started to look like a bargain.
We proposed:
Over 5–6 years, the total cost to own and keep the equipment under the 10% buyout came in lower than under the FMV structure, assuming the contractor bought the units at term (which they absolutely planned to).
Just as important, there was no end-of-term drama:
The owner’s takeaway:
“The FMV payments looked more comfortable, but we were fooling ourselves—there’s no world where we weren’t keeping those trucks. Once we priced in realistic buyouts, the 10% option was actually the conservative choice.”
That’s the central lesson of fixed buyouts: they often cost less, not because they’re cheaper month-to-month, but because they line up with how you actually use and keep your equipment.
1. What is a fixed buyout lease in Canada?
A fixed buyout lease is an equipment lease where your end-of-term purchase price is set up front, usually as a dollar amount ($1 or $10) or a percentage of the original cost (often 10–20%). Canadian leasing firms describe this as a “fixed purchase option” or “bargain purchase option,” and it’s different from an FMV lease where the buyout is based on market value at expiry.(Easylease)
2. How is a fixed buyout different from FMV?
With FMV, your buyout is whatever the equipment is worth at the end of the lease. With a fixed buyout, it’s a known amount—for example, 10% of original purchase cost. Because FMV leases assume the lessor will recover more at the end, they usually offer lower monthly payments. But when you plan to keep the equipment, a fixed buyout often provides a more predictable and sometimes lower total cost once you include that final payment.(Thomcat Leasing)
3. When does a fixed buyout actually cost less than FMV?
Fixed buyouts tend to cost less when you:
In those situations, the fixed buyout is often equal to or lower than the true FMV would have been, and you avoid extra wear-and-tear or mileage charges that can inflate the cost of an FMV lease.(BDC.ca)
4. Are fixed buyout leases tax-deductible in Canada?
Yes, but the how depends on how the lease is structured and classified. CRA allows businesses to deduct lease payments incurred for property used to earn income.(Canada) For capital-style leases (often $1 or low fixed buyouts), your accountant may record the asset on your balance sheet, claim CCA using CRA’s classes and rates, and treat part of each payment as interest expense.(Canada) For operating-style leases, you may simply deduct the payments. Your CPA should confirm the classification and deductions for your specific agreement.
5. What’s a typical fixed buyout percentage in Canada?
Many Canadian equipment lessors use 10% of original purchase cost as a common fixed buyout amount, but it can be higher or lower depending on asset type, credit, and term.(Easylease) High-value or rapidly depreciating equipment may carry lower fixed buyouts; very durable assets sometimes support slightly higher ones. The key is making sure the fixed percentage is realistic compared to what similar used equipment actually sells for at the end of the term.
6. How can Mehmi help me decide between FMV and fixed buyout?
Mehmi looks at how you really plan to use the equipment and then models both options:
If you send through a vendor quote, we can walk it through our calculator, show you the true total cost of different buyout options, and help you pick the one that matches your cash flow and long-term plans.
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