How is a car lease payment calculated?
A car lease payment is a depreciation part plus a finance part, with sales tax added on top of each payment. This lease calculator builds the payment that way, then puts a loan on the same car beside it so lease vs finance can be compared over the same months.
- Depreciation part = (net capitalized cost − residual value) ÷ number of months. The net capitalized cost is the price minus the down payment and trade-in. The residual value is what the lease company says the car will be worth at the end.
- Finance part = (net capitalized cost + residual value) × money factor. The money factor is the annual lease rate divided by 2,400.
- Sales tax = the provincial rate applied to the sum of the two parts, every month.
The loan side reuses the engine behind the car loan calculator: the price plus sales tax on the whole price, minus the down payment and trade-in, repaid monthly.
How do you use this lease calculator?
- Enter the vehicle price before tax, the down payment and any trade-in value. The same deal is used for the lease and for the loan.
- Choose the province or territory where the vehicle will be registered. It sets the tax on each lease payment and on the purchase price.
- Enter the lease offer: term, residual value as a percentage of the price, and the lease rate. All three are on a written lease quote. The kilometre allowance is shown with the result for information only.
- Enter the loan offer: rate and term, plus an estimate of what the car could sell for when the lease would end.
- Open “Sales tax options” to mark a zero-emission vehicle in British Columbia or to type in the tax rate printed on a lease quote.
- Read the four cards, then the tables: three paths side by side, the lease payment step by step, other residual values, other resale values, every province and a year-by-year running total.
The residual, both rates and the resale value start as example figures only. They are not market rates or forecasts; replace them with the numbers on the quotes in hand. Inputs stay in the browser. Nothing entered is sent to a server or added to the page address.
What does a worked lease vs finance example look like?
Take a hypothetical $40,000 car in Ontario with $3,000 down and no trade-in. The lease offer is 48 months at 5.99% with a 50% residual; the loan offer is 72 months at 6.99%; and the car is assumed to be worth 50% of its price after four years. Every figure is for illustration only.
| Step | Amount | How it is worked out |
|---|---|---|
| Net capitalized cost | $37,000 | The amount leased |
| Residual value | $20,000 | Set by the lease quote |
| Depreciation part | $354.17 | Value used up, per month |
| Finance part | $142.26 | Cost of the money, per month |
| Payment before tax | $496.43 | |
| Ontario HST on the payment | $64.54 | Charged every month |
| Monthly lease payment | $560.97 | 48 payments |
| Amount financed on the loan | $42,200 | Tax on the full price is financed |
| Monthly loan payment | $719.27 | 72 payments |
The lease is $158.30 a month lower. The next table shows why that is not the whole answer.
| Over 48 months | Lease and return | Lease, then buy out | Finance |
|---|---|---|---|
| Cash at signing | $3,390 | $3,390 | $3,000 |
| Total paid over 48 months | $30,317 | $30,317 | $37,525 |
| Still to pay to own the car | none | $22,600 | $16,066 |
| Value of the car (the estimate) | none | $20,000 | $20,000 |
| Net cost after the car’s value | $30,317 | $32,917 | $33,591 |
On these inputs the loan path ends with $3,934 of equity, and leasing still comes out $3,275 ahead. Change one input and the order flips: if the car is worth 60% of its price instead, financing comes out $725 ahead, and with a 40% residual in the lease quote, financing leads by $704. The calculator’s residual and resale tables show where that tipping point sits for any deal.
How does sales tax work on a lease compared with a loan?
Sales tax on a lease is charged payment by payment, while a purchase is taxed on the full price up front. The Canada Revenue Agency’s guide for GST/HST registrants treats a motor vehicle lease of more than three months as a separate supply for each lease interval, with the rate set by the province where the vehicle has to be registered. Its own example ends: each of the lease payments is subject to the HST if the car stays registered in Ontario.
The table runs the worked example through every province and territory. Only the tax changes.
| Province or territory | Tax on each lease payment | Monthly lease payment | Tax paid on the lease in 48 months | Tax on the purchase | Monthly loan payment |
|---|---|---|---|---|---|
| Alberta, Northwest Territories, Nunavut, Yukon | 5% | $521.25 | $1,341 | $2,000 | $664.72 |
| Saskatchewan | 11% | $551.04 | $2,951 | $4,400 | $705.63 |
| British Columbia (under $55,000), Manitoba | 12% | $556.00 | $3,219 | $4,800 | $712.45 |
| Ontario | 13% | $560.97 | $3,488 | $5,200 | $719.27 |
| Nova Scotia | 14% | $565.93 | $3,756 | $5,600 | $726.08 |
| Quebec | 14.975% | $570.77 | $4,018 | $5,990 | $732.73 |
| New Brunswick, Newfoundland and Labrador, Prince Edward Island | 15% | $570.89 | $4,024 | $6,000 | $732.90 |
Two limits apply to this table. The GST and HST lines follow the federal rule. The provincial part in Saskatchewan, Manitoba and Quebec is the general rate, pre-filled as an assumption, because how those provinces tax lease down payments and trade-ins is not modelled; a lease quote from a dealer there shows the tax actually charged, and that rate can be typed into the calculator. The GST, HST and PST calculator lists the general rates behind each row.
The lease pays less tax during the term because it is taxed only on the part of the car that is used. Buying out the lease closes most of that gap: the residual is taxed when it is bought.
How does British Columbia tax a leased vehicle?
British Columbia charges PST on the lease price, which Bulletin PST 116 defines to include down payments and lease payments, and it taxes a lease buyout as a separate sale. The PST rate on a passenger vehicle is not the general rate at every price: it follows the vehicle’s value on the first day of the lease, using the same bands as a purchase from a dealer.
How to read this table: find the band the vehicle's value falls in; that rate applies to the down payment and to every lease payment. GST is charged in addition. Zero-emission vehicles use higher thresholds while the temporary B.C. bands are in force; the calculator has a switch for them.
| Vehicle value from | PST rate |
|---|---|
| $0 | 7% |
| $55,000 | 8% |
| $56,000 | 9% |
| $57,000 | 10% |
| $125,000 | 15% |
| $150,000 | 20% |
Source: General Information for GST/HST Registrants (RC4022) — Trade-ins; General Information for GST/HST Registrants (RC4022) — Trade-ins (who the rule applies to); General Information for GST/HST Registrants (RC4022) — Trade-in worked example; General Information for GST/HST Registrants (RC4022) — Trade-in worked example (result); Buy or sell a used vehicle in Ontario — Tax on used vehicles; Buy or sell a used vehicle in Ontario — Who pays; Bulletin PST 308, PST on Vehicles — definition of purchase price; Bulletin PST 308 — definition of passenger vehicle; Bulletin PST 308 — Table 1, PST rates for motor vehicles (columns - private sale passenger, private sale non-passenger, from a GST registrant passenger, from a GST registrant non-passenger); Bulletin PST 308 — Table 2, PST rates for ZEVs acquired after February 22, 2022; Bulletin PST 308 — end date of the ZEV rates; Bulletin PST 308 — private sales; Bulletin PST 308 — trade-ins on purchases in B.C.; Bulletin PST 308 — paying PST on a private sale. In effect from June 18, 2026; checked September 30, 2026.
The bulletin’s own example is a five-year lease on a passenger vehicle valued at $60,000, with a $10,000 trade-in used as the down payment and a $20,000 option to purchase. The PST works out to $1,000 on the trade-in (10%), $60 on each $600 lease payment (10%), and $1,400 on the buyout, because the $20,000 buyout price falls in the 7% band. The calculator’s tests reproduce those three figures.
One more step applies in the 15% and 20% bands. The bulletin says that when either of those PST rates applies to a vehicle on which GST is payable, the PST is included in the amount GST is charged on. The calculator adds that GST on the PST to the down payment, each lease payment and the purchase price, and shows the combined rate in a warning. In the lower bands GST and PST are each worked out on the price alone.
The zero-emission vehicle bands are temporary. When the switch changes the PST rate on the lease or on the buyout, the calculator shows the date the bulletin gives for the end of those bands and the regular rate that could apply to payments due after it.
The part that surprises people is the trade-in. On a purchase in B.C. a qualifying trade-in can lower the taxable price. On a lease, the bulletin says trade-in credits do not reduce either the PST rate or the lease price. The calculator adds that PST to the cash due at signing on the lease path and flags it in the warnings.
What do you own at the end of each path?
At the end of a lease nothing is owned; at the same point on a loan, the owner has equity equal to the car’s value minus the loan balance. That single number decides most lease vs buy car comparisons, and it can be negative.
- Lease and return. The car goes back. Charges for kilometres over the allowance and for excess wear are settled then.
- Lease, then buy out. The residual plus sales tax is paid, in cash or with a new loan, and the car is owned. Total cost to own is every lease payment plus the buyout.
- Finance. Payments continue until the loan term ends. If the loan is longer than the lease, a balance is still owed at the comparison point.
In the worked example, stretching the loan to 96 months and assuming the car is worth 40% of its price leaves the loan balance above the car’s value at month 48: negative equity, which the calculator shows in a warning. A longer loan lowers the payment but pushes ownership further out. The loan calculator shows how any fixed-payment loan splits between interest and principal over time.
How does the maths work?
- Amount leased. Price minus the cash down payment and the trade-in.
- Residual. Price times the residual percentage in the lease quote.
- Lease payment. Depreciation part plus finance part, rounded to the cent, plus sales tax on that amount.
- Lease path total. Cash at signing (the down payment and the tax on it) plus every payment in the term. A first payment collected at signing is counted as one of those payments; a security deposit and fees are left out.
- Buyout. The residual plus sales tax on the residual.
- Loan. Price plus tax on the price net of a trade-in, minus the down payment and trade-in, at the loan rate divided by 12 each month. The schedule gives the balance at the month the lease would end.
- Equity and net cost. Equity is the entered resale value minus that balance. Net cost is everything paid minus what is owned.
The money-factor method is a close approximation of an exact amortization down to the residual: on the worked example the two are within one percent of each other, a check that is part of the calculator’s tests.
What are the most common mistakes when comparing a lease and a loan?
- Comparing monthly payments only. A lower lease payment says nothing about what is owned at the end.
- Treating the residual as the resale value. The residual is the lease company’s contract figure. The loan path depends on what a buyer would really pay.
- Comparing different lengths of time. A four-year lease against a six-year loan only lines up when both are measured at the same month, which is what the calculator does.
- Forgetting tax on the buyout. The buyout price in the contract is before sales tax.
- Ignoring the kilometre allowance. Driving well over it turns into a bill at lease end, or a reason to buy the car out.
- Leaving out insurance. Lease companies set their own coverage requirements, and premiums differ by vehicle. The comparison of car insurance in Ontario covers what drives the cost there.
When should you talk to a professional?
A written quote from the dealer or lease company is the place to confirm the residual, the lease rate, every fee and the tax actually charged, since those documents govern the contract and this calculator does not. An accountant is worth consulting when the vehicle is used for business or self-employment, because the tax deduction rules for leased and owned vehicles differ and are not modelled here. This page is an educational estimate, not financial or tax advice.