Construction Equipment Rental vs Purchase: Tax Strategy Guide for Contractors

When you run a construction business, one of the biggest decisions you’ll face is whether to rent or buy your equipment. The answer isn’t just about the sticker price—tax implications, cash flow, and business growth all come into play. Here’s a practical breakdown of what to consider, with a focus on the Canadian tax environment.

1. Tax Deduction Differences: Rent vs. Buy

Renting:

Rental payments are fully deductible as business expenses in the year you pay them. If you rent an excavator for $2,000/month, you can write off $24,000/year directly against your business income.

Buying:

Purchasing equipment means you claim Capital Cost Allowance (CCA) over several years. Most construction equipment falls under Class 22 (50% declining balance) or Class 38 (30% declining balance). For example, buying a $100,000 loader lets you claim $15,000 in year one (half-year rule for Class 38), then 30% of what’s left each year after. The tax savings are spread out, not immediate.

2. Cash Flow Impact

Renting:

• Lower upfront cost

• Predictable monthly expense

• No maintenance, storage, or insurance headaches

• Good for equipment you use less often

Buying:

• Big upfront investment

• Ongoing maintenance and insurance

• Makes sense if you use the equipment daily or nearly year-round

• After a few years, owning is usually cheaper than renting

3. Canadian Tax Tips

• The Accelerated Investment Incentive (AII) lets you claim more CCA in the first year for eligible purchases (check if you qualify; this is phasing out after 2027). • Rental expenses are always fully deductible—no matter the timing. • Each province may have extra incentives or rules, so check what applies in your area.

4. Decision Framework

Small Contractors:

If you use a piece of equipment less than 40% of the time, renting usually wins—keeps your cash available and risk low.

Medium Contractors:

Buy your core equipment (the stuff you use daily). Rent specialty items.

Large Contractors:

Run the numbers—if your crew keeps machines busy most of the year, buying almost always pays off long-term.

5. Real-World Example

A contractor considers a $150,000 excavator, used 200 days/year:

• Rent: $400/day × 200 = $80,000/year (fully deductible, saves ~$21,600 in tax at 27%)

• Buy: $150,000 upfront, $22,500 CCA first year, saves ~$6,075 in tax year one, but no more rental bills after that

• Break-even: Usually after about 2 years, ownership becomes more cost-effective

6. The Bottom Line

There’s no one-size-fits-all answer. Look at how often you’ll use the equipment, your cash flow, and your current tax position. For some, renting keeps things simple and flexible. For others, buying is a smart long-term investment.

If you’re not sure what makes sense for your business, talk to an accountant who understands construction and can run the numbers for your situation.

Need help making the right call?

Beagle Accounting Ltd. specializes in construction accounting and can help you weigh the tax and cash flow impacts of your equipment decisions.