Lease vs. Purchase Calculator (After-Tax NPV)

This calculator compares the after-tax cost of leasing versus purchasing an asset (with financing) using Net Present Value (NPV). It’s designed for Canadian small business corporations to support equipment decisions with tax effects (deductions, interest, and CCA) included.

What this tool does

• Models annual cash flows for both options over the selected analysis term.
• Includes the tax impact of lease deductions (lease payments + operating costs).
• Includes the tax impact of purchase financing: interest deductibility and CCA tax savings.
• Discounts after-tax cash flows to today using your discount rate to produce an NPV for each option.
• The option with the lower NPV cost is typically the more cost-effective choice.

How to use it

1. Enter the Common Information (asset cost, term, tax rate, discount rate, salvage value).
2. Complete the Leasing Scenario (monthly lease, fees, annual costs, residual/buyout).
3. Complete the Purchase Scenario (down payment, capitalized costs, loan rate, annual costs, CCA rate).
4. Click Compare Costs to view the lease vs. purchase results.
5. Use Download PDF Summary to save a clean file note for the client.

Key inputs explained

• Corporate Tax Rate (%): Used to calculate tax savings from deductions (lease payments, interest, CCA, operating costs).
• Discount Rate (%): Used to convert future after-tax cash flows into today’s dollars.
  Tip: Often set this equal to the loan interest rate to compare on a consistent basis.
• CCA Class Rate (%): The CCA rate applied to the purchase (includes the half-year rule in year 1).
• Salvage Value: Expected value at the end of the term (sale/trade-in). This can materially change the conclusion.
• Residual / Buyout (Lease): Expected buyout cost at end of term (if applicable).
• Capitalized Costs (Purchase): Costs added to the asset cost (e.g., delivery, installation, setup) and depreciated via CCA.

What the results mean

• Total Outflows: Cash paid over the term (payments + operating costs), before tax savings.
• Total Tax Savings: Estimated tax reduction from deductions (shown as a bracketed number).
• Net Cost: A simplified after-tax cost summary over the term (not discounted).
• NPV: The present value of after-tax cash flows over the term.
  Lower NPV = better (lower cost).

Important notes

• This is a planning tool. Results depend heavily on assumptions (term, rates, salvage value, CCA rate).
• Does not include GST/HST cash-flow effects, ITCs, project/job costing impacts, or inflation unless reflected in inputs.
• If the asset is sold for more/less than expected, or used longer than the analysis term, the real outcome may differ.