How is a lease payment calculated? In plain words, it is a depreciation fee plus a rent charge, with tax added on top. The depreciation fee pays for the value the vehicle is expected to lose over the term, the rent charge is the finance cost on the money tied up in the vehicle, and in Manitoba GST and retail sales tax are added to each payment. When you want real numbers for your own budget rather than an example, you can apply for financing online; any approval, rate or term is on approved credit.
This page is for the reader who has already decided to look at a lease and wants to read the disclosure line by line. If you are still weighing a lease against a loan, our post on leasing vs financing a truck covers that choice. To follow along with a real disclosure, open our current Jeep lease and finance offers, where each offer prints its own terms and end date. Those figures change monthly, so they stay on that page.
A lease is a contract with a manufacturer's finance company or an independent leasing company, usually arranged at the dealership. The Financial Consumer Agency of Canada (FCAC) puts it simply on its Car financing options page: "When you lease a car, you make regular payments for the use of the car over a set period."
Key Takeaways
- The formula: the depreciation fee (the amount the lease is built on, less the residual, divided by the months) plus the rent charge, then tax.
- The price comes first. Innovation, Science and Economic Development Canada (ISED) advises agreeing on the selling price with the dealer before choosing a finance or lease option.
- The residual is set by the lessor, in most cases the manufacturer, according to ISED. A higher residual means a lower depreciation fee.
- In Manitoba, tax is charged as you pay. Manitoba Finance says RST is due when the down payment, the monthly payments and any buyout you exercise are billed. GST is charged on each payment as well.
- The rate shows up as a rent charge. In our worked example, an illustrative 6 percent rate makes the rent charge about a quarter of the base payment. That is an example, not an offer or a quote, and any real rate is on approved credit.
How Is a Lease Payment Calculated, Step by Step
Leases are generally worked out in three steps, and your lessor's own method can land a few dollars either side of this.
- Depreciation fee. The amount the lease is built on, less the residual, divided by the number of months.
- Rent charge. The amount the lease is built on plus the residual, multiplied by the money factor, which is the annual lease rate divided by 2,400.
- Tax. In Manitoba, GST and RST on the payment.
The Price the Lease Is Built On
On a lease worksheet this line is often called the capitalized cost. It starts from the selling price, can include items added to the deal such as accessories or a protection product, and is lowered by a down payment or a trade. ISED's Vehicle Lease or Loan Calculator Tips page is clear on the order: "Before choosing a finance or lease option, you should agree with the dealer on the selling price." Every dollar off this line comes off the depreciation fee and the rent charge together.
The Residual and Who Sets It
The residual is what the vehicle is expected to be worth when the lease ends, and it is usually the price to buy it at that point. ISED's Definitions page says buybacks "are determined by the leaser, in most cases the manufacturer", and that they are usually expressed as a percentage of the manufacturer's suggested retail price. A higher residual leaves less depreciation to pay for, so the payment falls.
The Lease Rate
The rate may be printed as an annual percentage or as a money factor, a small decimal. To compare them, divide the annual rate by 2,400: 6 percent becomes 0.0025. Ask for the rate as an annual percentage so you can compare it with a loan. Any rate on a lease is on approved credit.
The Term
The term is the number of months. FCAC says a lease term "is typically 3 to 5 years." ISED's Tips page adds: "Your monthly payment will depend on the length of the term and the amount of your down payment." Some offers quote the payment weekly or every two weeks; our post on biweekly vs monthly car payments shows how to compare them.
The Kilometre Allowance
ISED notes that "Leases usually have a fixed allowance for kilometres travelled." The allowance generally feeds the residual: the more kilometres the lessor expects, the less it expects the vehicle to be worth at the end. This is where Manitoba distances matter. A weekday commute from Portage la Prairie to Winnipeg, roughly 85 km each way, comes to about 40,800 km over 48 working weeks before a single trip to Brandon or the lake. Our guide to going over kilometres on a lease covers the charge at the end.
What Is Due at Signing
The amount due at signing can include the first payment, a down payment, a refundable security deposit and fees. Manitoba Finance's Bulletin No. 012 says a security deposit taken at the start of a lease and returned to you is not taxable, while RST applies to the down payment when it is billed.
How Tax Is Charged on a Lease Payment in Manitoba
In Manitoba you pay tax on the lease as you go, not on the whole vehicle at signing. Manitoba Finance's Bulletin No. 012, Motor Vehicle and Trailer Dealers, states it directly: "RST is due when the payments are billed, i.e., the down payment, the monthly lease payments and the option to purchase (if exercised)." The RST rate on vehicles is 7 percent, as the bulletin's own examples show. Separately, the Canada Revenue Agency treats each payment period of a lease longer than three months as a separate supply and lists 5 percent GST for a province outside the HST, such as Manitoba, so GST is charged on each payment too.
Three more Manitoba details from the same bulletin:
- Autopac. No RST applies to Autopac premiums on a term lease when you pay them directly, or when the lessor bills them separately from the lease payment.
- Separately billed charges. Mileage charges and damage assessments billed separately from the lease payment carry RST.
- A trade. When you trade a vehicle of the same general kind, such as a car traded on a truck, RST applies to the net difference, and the bulletin's lease examples take the trade off the selling price first. You must own the trade when the Transfer of Ownership Document is completed, so a vehicle you are still leasing belongs to its lessor; ask our team how a lease return is handled before you count on the credit. You can check your trade in value with our instant cash offer. We honour the instant cash offer: the number you get online is the number we stand behind when the vehicle matches what you told us.
On a real lease, ask our team to show you the tax on the payment line by line. For tax on a purchase, see our guide to taxes when buying a vehicle in Manitoba.
A Worked Example: Not an Offer or a Quote
Every figure in this section is an example, not an offer or a quote, with round numbers chosen to keep the arithmetic readable. The 6 percent rate is illustrative, not a current rate or an offer, and any real rate is on approved credit. On a real vehicle, the price a lease is built on is less any applicable incentives, so check our current pricing here for the most up to date pricing information.
| Line (example only) | Working | Figure |
|---|---|---|
| Price the lease is built on | example figure | $50,000 |
| Residual | example figure | $25,000 |
| Term | 48 months | |
| Rate (illustrative) | 6 percent divided by 2,400 | money factor 0.0025 |
| Depreciation fee | $50,000 less $25,000, divided by 48 | $520.83 a month |
| Rent charge | $50,000 plus $25,000, times 0.0025 | $187.50 a month |
| Base payment | $520.83 plus $187.50 | $708.33 a month |
| Tax | 5 percent GST $35.42 plus 7 percent RST $49.58 | $85.00 a month |
| Payment with tax | $708.33 plus $85.00 | $793.33 a month |
Over 48 months the base payments come to about $34,000: $25,000 of depreciation and $9,000 of rent charge, with about $4,080 of tax on top. At the end, the $25,000 residual is the price to buy the vehicle, and RST is due on it if you exercise that option. None of these is a real vehicle's price, which is less any applicable incentives.
What Moves the Payment
Each change below starts from the same example and shows the base payment before tax.
| Change (example only) | Base payment | Difference |
|---|---|---|
| A price $2,000 lower ($48,000) | $661.67 a month | $46.66 less |
| A residual $2,500 higher ($27,500) | $662.50 a month | $45.83 less |
| A rate one point lower (5 percent, illustrative) | $677.08 a month | $31.25 less |
| $5,000 down, paid at signing, with RST charged on it when billed | $591.67 a month | $116.66 less |
A lessor that works the rent charge as interest on a falling balance will land within a few dollars of these figures, and on a real vehicle the price the lease starts from is less any applicable incentives.
Where to Find the Real Numbers
Every term above is printed on a real lease disclosure. Our Jeep finance deals page lists each current lease offer with its term, kilometre allowance, rate, amount due at signing and end date. At Dunn Ram Trucks in Portage la Prairie, ask our team to show you the price the lease is built on, the residual, the rate and the tax on the payment before you sign, wherever in Manitoba you live.
FAQs
How is a lease payment calculated?
A lease payment is a depreciation fee plus a rent charge, then tax. The depreciation fee is the amount the lease is built on, less the residual, divided by the months; the rent charge is generally the amount the lease is built on plus the residual, multiplied by the annual rate divided by 2,400. In Manitoba, GST and RST are then added to each payment.
Who sets the residual value on a lease?
The lessor sets it. Innovation, Science and Economic Development Canada says buybacks are determined by the leaser, in most cases the manufacturer, and are usually expressed as a percentage of the manufacturer's suggested retail price.
Is tax charged on the whole vehicle or on each lease payment in Manitoba?
On each payment. Manitoba Finance's Bulletin No. 012 says RST is due when the down payment, the monthly lease payments and the option to purchase, if exercised, are billed. The Canada Revenue Agency treats each payment period of a lease longer than three months as a separate supply, so GST is charged on each payment too. Ask our team to show you the tax on the payment for a real lease.
Does a down payment lower a lease payment?
Yes. A down payment lowers the amount the lease is built on, which lowers both the depreciation fee and the rent charge, but it is paid at signing and RST is charged on it when billed.
Should I agree on the price before talking about the lease?
Yes. Innovation, Science and Economic Development Canada advises agreeing on the selling price with the dealer before choosing a finance or lease option, because every dollar off the price lowers the depreciation fee and the rent charge.
The Bottom Line
A lease payment is arithmetic you can check: the price less the residual, spread over the months, plus a rent charge, plus tax on each payment in Manitoba. Settle the price first, read the residual, the rate, the term and the kilometre allowance in that order, and ask to see the tax on the payment.
When you are ready, apply for financing online, on approved credit, and see what your trade is worth before you sign.
Tyler Dunn, Dunn Ram Trucks, Portage la Prairie
