Equipment Financing Tax Benefits in Canada: CCA, Interest and Lease Deductions Explained

When you finance or lease equipment for your business in Canada, the cost is not simply what you pay each month. The CRA lets you deduct portions of that cost from your taxable income, which reduces what you actually pay in after-tax dollars. The three main deductions are Capital Cost Allowance (CCA) on purchased equipment, interest on equipment loans, and lease payments on leased equipment. Which ones you can claim depends on whether you buy or lease.

Key takeaways

• If you buy equipment with a loan, you can claim CCA on the asset (most equipment at 20% per year on a declining balance) and deduct the loan interest as a business expense. These are two separate deductions running at the same time.
• If you lease equipment, you generally deduct the full lease payment as a business expense in the year you make it, which is simpler than tracking CCA over multiple years.
• The federal Accelerated Investment Incentive enhances the first-year CCA deduction for equipment available for use before 2028, though the enhancement is being phased out.
• Vehicles, manufacturing machinery and small tools each fall into different CCA classes with different rates, so the tax treatment varies by equipment type.

Item	Detail
CCA Class 8 (most equipment)	20% per year, declining balance
CCA Class 10 (vehicles)	30% per year, declining balance
CCA Class 53 (manufacturing, acquired before 2026)	50% per year, declining balance
Loan interest	Deductible as a business expense in the year paid
Lease payments	Deductible as a business expense in the year paid
Funding through CBL Financial	Up to $1,000,000, terms from 24 to 72 months

What is Capital Cost Allowance?

Capital Cost Allowance is the CRA’s term for depreciation. When your business buys a piece of equipment, you cannot deduct the full purchase price in the year you buy it. Instead, you claim a percentage of the remaining undepreciated cost each year, using the declining balance method. The percentage depends on which CCA class the equipment falls into.

Say you buy a $100,000 piece of equipment in Class 8 at 20% per year. In a normal year (without the Accelerated Investment Incentive), the half-year rule limits the first-year claim to 10% of the cost. You would deduct $10,000 in year one, then 20% of the remaining $90,000 ($18,000) in year two, then 20% of $72,000 ($14,400) in year three, and so on. The deduction shrinks each year because it is always 20% of what is left, not 20% of the original price.

The important point: CCA is optional. You can claim less than the maximum in any year, which is useful if your business had low income and you want to save the deduction for a year when your tax rate is higher.

CCA classes that matter for equipment

The CRA groups depreciable property into classes, each with its own rate. Here are the classes most relevant to equipment financing:

CCA class	Rate	What it covers
Class 8	20% per year	Most general business equipment: furniture, machinery, tools over $500, appliances, signage
Class 10	30% per year	Motor vehicles and general-purpose trucks
Class 12	100%	Small tools, medical or dental instruments and kitchen utensils costing less than $500 each
Class 16	40% per year	Taxis and freight trucks with a gross vehicle weight exceeding 11,788 kilograms
Class 43	30% per year	Manufacturing and processing equipment not included in Class 53
Class 53	50% per year	Manufacturing and processing equipment acquired after 2015 and before 2026

A truck you use for deliveries goes into a different class than a CNC machine on your shop floor, and the yearly deduction is different for each. Getting the classification right matters because it determines how quickly you recover the cost through tax savings.

The Accelerated Investment Incentive

The federal government introduced the Accelerated Investment Incentive to encourage capital spending by letting businesses claim a larger CCA deduction in the first year they put equipment to use. It works by suspending the half-year rule and, in its original form, allowing up to three times the normal first-year deduction.

The incentive applies to eligible property acquired after November 20, 2018, and available for use before 2028. However, the enhancement is being phased out during 2024 through 2027. For property becoming available for use during this phase-out period, the first-year boost is reduced to about two times the normal amount for property that would otherwise be subject to the half-year rule.

The incentive does not apply to CCA classes that already have their own accelerated write-off rules, including Class 53 (manufacturing equipment) and Classes 54 and 55 (zero-emission vehicles).

Pro tip: The Accelerated Investment Incentive is phasing down, so equipment put to use sooner qualifies for a larger first-year write-off than equipment put to use later in the phase-out window. If you are planning a purchase and the timing is flexible, your accountant can model what the first-year deduction looks like at different in-service dates.

Interest deductions on equipment loans

When you borrow money to buy equipment through an equipment loan, the interest you pay on that loan is generally deductible as a business expense. This applies whether the lender is a bank, a credit union or an alternative lender. The CRA states that you can deduct interest incurred on money borrowed for business purposes.

The interest deduction is separate from CCA. On the same piece of equipment, you claim CCA on the asset’s cost and deduct the interest on the loan used to buy it. Both reduce your taxable income, but they follow different schedules: CCA follows the declining balance for the asset’s class, while interest is deducted in the year you pay it.

There are also the upfront costs of arranging the financing. Fees such as application fees, appraisal fees, processing fees and legal fees related to borrowing are deductible at 20% per year over five years, not all at once in the year you pay them.

Lease payment deductions

If you lease equipment instead of buying it, the tax treatment is different. Rather than claiming CCA on an asset you own, you deduct the lease payments as a business expense. The CRA allows you to deduct the percentage of the lease costs that reasonably relates to earning your business income.

The advantage of a lease deduction is simplicity. The full payment (not just an interest portion) is deductible, and you claim it in the year you make it. There is no multi-year depreciation schedule to track, no half-year rule to apply, and no class assignment to look up.

The trade-off is that you do not own the equipment and you do not build equity. If you exercise a buyout at the end of the lease, the buyout amount becomes the cost basis for CCA purposes from that point forward.

Loan vs. lease: comparing the tax treatment

The right structure depends on your business’s tax position, the type of equipment and how long you plan to use it. Here is how the deductions line up:

Factor	Equipment loan (you own it)	Equipment lease (lessor owns it)
Asset depreciation	CCA at the class rate, declining balance, over multiple years	Not applicable (lessor claims CCA)
Payment deduction	Interest portion is deductible each year	Full lease payment is deductible each year
First-year boost	Accelerated Investment Incentive enhances first-year CCA (phasing out before 2028)	Not applicable
Financing fees	Deductible at 20% per year over five years	Typically built into the lease payment
End-of-term treatment	Disposal may trigger CCA recapture (taxable) or a terminal loss (deductible)	Buyout amount becomes the new CCA cost basis
Complexity	Higher: track CCA class, UCC balance, interest separately	Lower: one deduction per payment

A business with strong taxable income that wants to maximize first-year deductions may benefit from buying, especially while the Accelerated Investment Incentive still applies. A business that values simplicity and predictable monthly deductions may prefer leasing. Your accountant can model both scenarios with your actual marginal tax rate and the specific equipment class.

Heads-up: If you use equipment for both business and personal purposes, you can only deduct the business-use portion of either CCA or lease payments. The CRA expects you to calculate the percentage that reasonably relates to earning business income, and to keep records that support your split. This is especially common with vehicles.

How CBL Financial can help

CBL Financial arranges equipment loans and leases for businesses across Canada, with funding up to $1,000,000 and terms from 24 to 72 months. Whether you want to own the equipment and claim CCA or lease it and deduct the payments, we can structure the deal to fit. Run the numbers on the equipment financing calculator or apply online to see what your options look like.

Frequently asked questions

Can I deduct the full cost of equipment in the year I buy it?

Generally, no. The CRA requires you to spread the deduction over several years through Capital Cost Allowance, using the declining balance method at the rate for the equipment’s class. The Accelerated Investment Incentive does enhance the first-year deduction for eligible property available for use before 2028, but it does not allow a full write-off for most equipment classes.

Are equipment lease payments tax deductible in Canada?

Yes. Lease payments on equipment used for business purposes are generally deductible as a business expense in the year you make them. You deduct the portion that relates to earning business income. This is different from purchasing, where you claim CCA on the asset over multiple years instead.

What CCA class does my equipment fall into?

It depends on the equipment type. Most general business machinery and furniture falls into Class 8 at 20% per year. Vehicles go into Class 10 at 30%. Manufacturing equipment acquired after 2015 and before 2026 goes into Class 53 at 50%. Small tools under $500 fall into Class 12 at 100%. The full list is on the CRA’s CCA classes page.

Is the interest on an equipment loan tax deductible?

Yes. Interest paid on money borrowed for business purposes, including equipment loans, is generally deductible as a business expense. This deduction is separate from CCA, so you can claim both on the same piece of equipment: CCA on the asset and the interest deduction on the loan.

Should I lease or buy equipment for the best tax outcome?

There is no universal answer. Buying gives you CCA deductions plus interest deductions, which can produce larger total deductions over the equipment’s life, especially with the Accelerated Investment Incentive still partially available. Leasing gives you a simpler, immediate deduction for each payment. The better choice depends on your marginal tax rate, cash flow and how long you plan to use the equipment. Your accountant can compare the after-tax cost of each structure for your situation.

What happens to my CCA when I sell or dispose of equipment?

When you dispose of equipment, the proceeds may trigger CCA recapture (if the proceeds exceed the undepreciated capital cost in the class, the difference is added back to your income) or a terminal loss (if the class balance exceeds the proceeds and no other property remains in the class, you can deduct the difference). Your accountant should review the disposition so nothing is missed.

General information, not financial advice.