How to Handle a Leased vs. Purchased Asset

Whether you lease or buy a piece of equipment or vehicle has different implications for your books, your taxes, and your cash flow. This article explains the difference and how each is recorded.

The Core Difference

	Purchase	Lease
Ownership	You own the asset	You're using it — the lessor owns it
Balance Sheet	Asset recorded, loan as liability	Depends on lease type (see below)
Tax treatment	CCA claimed on the asset	Lease payments may be deductible as an expense
Cash flow	Lump sum or loan payments	Regular lease payments
End of term	You still own it	You return it, buy it, or renew

Types of Leases

Operating Lease (True Lease)

You're renting the asset for a period of time. At the end of the lease, you typically return it. Monthly payments are recorded as an operating expense — they go directly to your Profit & Loss.

Common examples: office space, some equipment rentals, vehicle leases where you return the car.

In QBO: Record monthly lease payments as an expense (e.g., "Lease Expense" or "Rent – Equipment").

Finance Lease (Capital Lease)

You're effectively financing the purchase of an asset through a lease — you'll likely own it at the end (or have a nominal purchase option). The asset must be recorded on your Balance Sheet, and the lease obligation recorded as a liability.

Finance leases are identified by characteristics like:

The lease term covers most of the asset's useful life
A bargain purchase option at the end
Ownership transfers at lease end
Present value of payments is close to the asset's fair value

In QBO: Your Mesa CPA bookkeeper sets this up — it requires recording both the right-of-use asset and the lease liability, and amortizing each over the lease term.

Vehicles: A Common Example

Vehicles are frequently leased, and the tax rules for leased vehicles are specific.

Leased vehicle:

Monthly lease payments are deductible — but only the business-use portion
The CRA caps the deductible monthly lease cost at $1,050/month (2024, before tax) for passenger vehicles, regardless of the actual payment
GST/HST ITCs can be claimed on the lease payments (business portion only)

Purchased vehicle:

Recorded as an asset, CCA claimed at 30% (Class 10) or 30% on a separate Class 10.1 for vehicles over the cost limit
The CRA caps the capital cost for passenger vehicles at $37,000 (2024) for CCA purposes

Your Mesa CPA advisor will help you determine which option is better for your situation.

Normal Procedure

Recording an Operating Lease Payment

Go to + New > Expense or record from the bank feed.
Select the appropriate expense account (e.g., "Lease Expense," "Equipment Rental," "Rent").
Enter the payment amount and date.
Apply the correct GST/HST for ITCs.
Save.

Recording a Finance Lease

This requires your Mesa CPA bookkeeper to set up the initial entry (asset and liability), and then process:

Monthly amortization of the right-of-use asset
Reduction of the lease liability with each payment (split between principal and interest)

Do not attempt to set this up without your bookkeeper's guidance.

Abnormal Procedures

You're not sure whether your lease is operating or finance.

Check the lease agreement — specifically the end-of-term options and whether you effectively assume the risks of ownership. If still unclear, have your Mesa CPA advisor review the agreement before you set it up in QBO.

You leased equipment and the lease ended — you're buying the asset outright.

Record the buyout as a new asset purchase at the purchase price. If it was previously on your Balance Sheet as a finance lease, your bookkeeper will need to close out the lease accounts and transfer the appropriate value to the asset account.

FAQ

Is a lease payment always fully deductible?

For operating leases used entirely for business, yes — subject to the caps for passenger vehicles. For personal-use portions, only the business share is deductible. Finance lease payments split into principal (no deduction) and interest (deductible), with amortization on the asset instead.

Should I lease or buy?

It depends on cash flow, tax position, and how long you plan to use the asset. Leasing preserves cash and may offer flexibility. Buying builds equity and may offer better long-term value. Your Mesa CPA advisor can model the after-tax cost of each option.

What happens to a leased asset in a sale of the business?

Leases need to be assigned or terminated as part of a business sale. The buyer either assumes the lease (with the lessor's consent) or it's wound up. This is a key due diligence item in any business sale.

Can I claim GST/HST on lease payments?

Yes — for the business-use portion of operating lease payments. The same restrictions that apply to deductibility also apply to ITCs (e.g., the $1,050/month cap for passenger vehicles also limits your ITC claim).