Most equipment financing questions assume you are about to buy something. This one runs the other way: you already own the machine, it is already paid for or close to it, and the value sitting in it is doing nothing for your cash flow.
A sale-leaseback converts that value into cash without the machine leaving your yard. You sell it to a lender, lease it straight back, and keep working. Nothing about your day changes except that there is now money in the account and a payment on the calendar.
It is a legitimate, ordinary structure — Scotiabank and RBC both describe leaseback arrangements in their commercial equipment finance material, and specialist lenders advertise it heavily. But it is underwritten backwards from a purchase, and the two costs that catch Canadian contractors out are not the rate. They are the tax bill on the sale and a lien you had forgotten was still registered.
What a Sale-Leaseback Actually Is
One transaction, two legs, closing at the same time. You transfer legal title to the machine to a lender or leasing company in exchange for a lump sum. In the same closing, they lease it back to you for a fixed monthly payment over a set term. The machine never moves. Your operators do not know it happened.
At the end of the term there is a buyout, and its structure decides the tax treatment. This is the same fork covered in our guide to equipment leasing in Canada: a $1 buyout is treated by the Canada Revenue Agency as a purchase rather than a true lease, which changes who claims capital cost allowance and how the payments are deducted. A fair-market-value buyout is a genuine lease. Neither is better in the abstract — they are priced differently and taxed differently, and the right one depends on whether you want the machine back on your own CCA schedule.
Where it differs from refinancing a loan. Refinancing replaces one debt with another against a machine you keep title to. A sale-leaseback moves title. That is why it can raise money on a machine you own outright, where there is no loan to refinance — and it is also why the tax consequences below exist at all.
There is usually a floor on transaction size, and it rules out small machines. This is not a structure for a $20,000 skid steer. Scotiabank, for example, publishes a minimum transaction size of $50,000 for Scotia Leasing, which explicitly covers "a sale and leaseback for assets you already own," with a minimum term of 2 years and a maximum term of 7 years. Specialist lenders set their own floors and some go lower, but the shape is consistent: the fixed cost of an appraisal, a lien search and a closing has to be worth someone's while. If the machine is worth less than the mid five figures, the answer is usually a different product.
Why the Underwriting Is Harder, Not Easier
This is the part almost nobody explains, and it is the reason otherwise-strong files get declined.
On a purchase, the lender is checking somebody else's story. Does the seller actually own it? Is the price real? Is there a lien? Our guide to financing a private-sale machine is almost entirely about that verification work.
On a sale-leaseback, none of those questions exist — because you are the seller. There is no third party to verify and no negotiated price to sanity-check. So the lender's entire attention moves to two things: what the iron would fetch if it had to take it back, and whether your business can service a payment it did not have last month.
And that second question is genuinely harder here than on a purchase. When a contractor finances a new excavator, the machine arrives and (in theory) earns the revenue that makes the payment. The asset and the obligation arrive together. A sale-leaseback adds the obligation without adding the asset — the machine was already working for you last month and will earn exactly the same as it did before. The new payment has to come out of cash flow that already exists.
That is why revenue matters more on these files, not less. It is the same threshold logic covered on our page for contractors whose bank has already declined them: revenue is a gate that gets checked before credit is scored, and a strong asset does not compensate for failing it. A sale-leaseback is the structure where that bites hardest, because the asset is the only thing that got stronger.
What Lenders Look For When the Machine Is Already Yours
Clear title, or a payout that fits. The machine has to be unencumbered by closing. If there is a balance, it is paid out of the proceeds and discharged before the new lender takes its position — see the lien section below, because this is where files stall.
Cash flow that carries the new payment on its own. Deposits, not projections. The lender is sizing the payment against what actually lands in the business account, and because no new productive asset is arriving, there is no "the machine will pay for itself" argument available to you.
A machine with a real resale market. Liquidity matters more here than on a purchase. Mainstream iron from a mainstream brand in a province where somebody else will want it is worth more to a lender than a specialty machine with three possible buyers in the country.
A credible reason for the money. Not a formality. A lender reads "funding a signed contract" very differently from "general working capital," because the first has a repayment story attached and the second may be a symptom.
Age and hours that leave room in the term. The lease has to end while the machine still has value. A machine that will be at the end of its economic life before the term expires does not support the term, which shortens it, which raises the payment.
What Your Machine Is Actually Worth Today
The advance is a percentage of value, so value is the ceiling on the whole transaction. Most contractors anchor on what they paid. Lenders anchor on what the machine would sell for now — and those diverge fast.
Here is what Canadian dealers are actually asking, from our own normalized dealer-inventory mirror. Every figure below is Canadian listings only, and the distinct dealer count is published beside each one, because a price range drawn from one dealer's lot is that dealer's price ladder rather than a market:
| Machine class | Listings | Dealers | Lower quartile | Median ask | Upper quartile |
|---|---|---|---|---|---|
| Excavator | 1,129 | 44 | $69,900 | $119,900 | $217,000 |
| Wheel loader | 823 | 43 | $89,900 | $169,500 | $271,950 |
| Dozer | 478 | 39 | $29,925 | $165,000 | $349,975 |
| Grader | 332 | 25 | $119,750 | $229,000 | $319,600 |
| Backhoe | 221 | 26 | $59,000 | $85,000 | $127,800 |
| Compactor | 178 | 27 | $30,225 | $68,084 | $143,000 |
| Telehandler | 164 | 22 | $55,450 | $105,000 | $175,625 |
And because age drives value harder than almost anything else, the same data for excavators alone, split by model year:
| Model year | Listings | Dealers | Lower quartile | Median ask | Upper quartile |
|---|---|---|---|---|---|
| 2021 and newer | 454 | 36 | $95,000 | $199,900 | $322,450 |
| 2016–2020 | 339 | 39 | $83,450 | $139,000 | $199,250 |
| 2011–2015 | 168 | 31 | $69,998 | $99,000 | $129,625 |
| 2000–2010 | 83 | 22 | $57,750 | $68,500 | $87,950 |
Read these as a ceiling, not as your number. They are dealer asking prices — what a dealer hopes to retail a reconditioned machine for, with a lot and a salesperson behind it. A lender advancing against your machine is estimating what it would recover selling that machine quickly, without your goodwill and without a lot. That figure sits below the numbers above, which is the single most common source of disappointment in a leaseback file.
Use the spread, not the midpoint. The gap between the lower and upper quartile on excavators is roughly threefold. Condition, hours, attachments and where you are in the country move a machine within that range far more than the class median suggests. If you want a rough read before you talk to anyone, our equipment value estimator is a starting point.
The Tax Nobody Quotes You: CCA Recapture
Selling the machine is a disposition, and dispositions have tax consequences even when the machine never leaves your yard. This is the cost most often missing from the pitch, and it is the one that can arrive months later as a surprise.
How the mechanic actually works. Canadian capital cost allowance is pooled by prescribed class, not tracked machine by machine. Most heavy mobile construction equipment — excavators, dozers, loaders, graders — sits in Class 38 at 30% declining balance. When you dispose of a property, you subtract from that class pool the lesser of the net proceeds of disposition and the original capital cost of the property. The Income Tax Act puts it this way in the definition of undepreciated capital cost: the amount is "the lesser of (a) the proceeds of disposition of the property minus any outlays and expenses ... and (b) the capital cost to the taxpayer of the property."
Because it is pooled, a sale does not automatically create a tax bill. If you have other machines in Class 38, the subtraction comes off a pool that still has balance in it and nothing is triggered. This is why blanket warnings about leaseback tax are unhelpful — it genuinely depends on what else you own.
But if the subtraction drives the pool negative at year end, that shortfall is income. Section 13(1) requires that where the relevant totals exceed the undepreciated capital cost of depreciable property "of a particular prescribed class," the excess "shall be included in computing the taxpayer's income of the year." That is recapture. In plain terms: you can be taxed on cash you have just borrowed, in the same tax year you borrowed it, because for tax purposes you sold an asset you had already written most of the way down.
The practical consequence. A contractor who has claimed years of CCA on a well-used machine has a low remaining pool balance attributable to it. That is exactly the contractor most likely to do a leaseback, and exactly the one most exposed to recapture. Run the class with your accountant before you sign, not at year end. If the number is large, it is sometimes worth timing the transaction across a fiscal year boundary or structuring the buyout differently.
One more wrinkle worth knowing about. If you lease equipment worth more than $25,000 and both parties agree, you can file a CRA election (Form T2145, under section 16.1 of the Income Tax Act) to treat the lease as a purchase for tax — claiming CCA and deducting interest as though you had financed it. It is opt-in and needs the lessor's cooperation. Our guide to lease versus finance for contractors covers that election in more detail.
The Lien Search on Your Own Machine
Search your own serial number before you apply. It sounds unnecessary — you know whether you paid the machine off. What you may not know is whether the discharge was ever registered.
Two things turn up more often than contractors expect. The first is a security interest from the original purchase that was paid out years ago but never discharged from the provincial personal property registry. The obligation is gone; the registration is not, and a new lender will not fund behind it. The second is broader and catches more people: a general security agreement registered by your bank when you opened an operating line. A GSA can blanket all present and after-acquired equipment, which means it covers a machine your bank never specifically financed. It will have to be subordinated or discharged, and that requires your bank's cooperation on their timeline, not yours.
Search by serial number and by your exact legal business name. They are separate indexes. A registration filed against the business name will not surface on a serial search, and the reverse is equally true. If the machine was bought under a predecessor company or a personal name, search that too.
It is cheap. British Columbia publishes $7 for a client search through its online registry and $10 for one performed by registry staff. Alberta runs its registry through authorized agents who set their own service fees, so confirm the cost with the agent. Quebec's equivalent is the RDPRM rather than a PPSA registry.
Note that the buyer-protection rule that helps on some purchases does not help you here at all. PPSA s. 28(1) protects a buyer who buys goods from a seller selling in the ordinary course of business — that is a dealer, not you selling your own machine, and in a leaseback you are not the buyer anyway. The registration follows the machine. Clear it.
What Drives How Much You Can Raise
The liquidation value of the machine, not its retail value. Covered above, and it is the largest single factor. Everything else adjusts around it.
Anything still owed on it. Paid out first, from your proceeds. Net cash is the advance minus the payout, and if that is negative there is no deal.
How liquid the machine class is where you are. A mainstream excavator in Alberta has many possible buyers. A specialty attachment or an orphan brand has few, and a lender prices that in by advancing less or shortening the term.
Age against the term. The lease has to finish while the machine still holds value, so an older machine gets a shorter term, and a shorter term means a bigger payment for the same money — which loops back into whether your cash flow supports it.
Your revenue, more than your credit. Credit sets the rate here. Revenue sets whether there is a deal at all, for the reason set out earlier: the payment has no new asset behind it.
Mistakes That Kill a Sale-Leaseback
Treating the dealer asking price as your advance. The most common one, and the tables above exist to prevent it. A machine that lists at $119,900 does not raise $119,900.
Not running the CCA class first. A recapture bill discovered at year end, on cash already spent, is the worst version of this transaction. It is a twenty-minute conversation with your accountant beforehand.
Assuming the machine is lien-free because the loan is paid. Undischarged registrations and blanket GSAs are both common. Neither is a problem if you find them early; both are a multi-week problem if the lender finds them at funding.
Using the cash to cover an operating deficit with no plan for the deficit. This is the version of a leaseback that ends badly. You have converted your last unencumbered asset into cash, added a payment, and changed nothing about why the money was short.
Doing it on a machine you are about to outgrow. Locking a machine into a lease term makes it harder to sell or trade mid-term. If the machine is genuinely wrong for the work you are winning now, selling it outright may serve you better than borrowing against it.
Forgetting that the payment is a new fixed cost. It survives a slow quarter. A machine you own outright does not generate an invoice when work stops; a leased one does.
Strategies to Raise More Against the Same Iron
Clear small registrations before you apply, not during. A single undischarged $4,000 registration can hold up a six-figure funding for two weeks. Pull your own search first and start the discharge requests immediately.
Bundle machines rather than picking one. Several paid-off machines in one transaction often support better terms than the single most valuable one on its own, because it spreads the lender's recovery risk across more than one resale.
Bring the documentation the appraiser needs before they ask. Service records, hour meter photographs, serial plate photographs, attachment lists and any recent major component work. An appraiser with evidence values a machine higher than one working from a walkaround, and the difference is real money.
Time it against your fiscal year if recapture is in play. Where the tax hit is material, moving the closing across a year end can change when the income is recognised. This is an accountant's call, not a broker's — but it is worth asking the question before you pick a closing date.
Fix the term to the work, not to the lowest payment. The longest term gives the smallest payment and the most total interest, and on an older machine the lender may not offer it anyway. Match the term to how long the machine will genuinely earn.
Know what the payment does to your ratios before you sign. If you expect to finance another machine within the year, this payment is on the file when you do. Our payment calculator will show what a given structure costs monthly, and our rate comparison guide covers where secured equipment pricing sits relative to the unsecured alternatives a leaseback is usually competing against.
Sources: Recapture of capital cost allowance and the class-pool mechanic — Income Tax Act s. 13(1) and the definition of "undepreciated capital cost" in s. 13(21), element F (Justice Canada); Class 38 (30%) for contractors' movable power-operated excavating equipment — Canada Revenue Agency, IT-306R2; the section 16.1 / Form T2145 election to treat a lease as a purchase above $25,000 — Canada Revenue Agency, T4002; BC Personal Property Registry search fees of $7 (online client search) and $10 (staff search) — BC Registries; Alberta personal property registrations through authorized registry agents — Government of Alberta; ordinary-course-of-business buyer protection — Personal Property Security Act (Ontario) s. 28(1), Government of Ontario; the $50,000 minimum transaction size, the 2-to-7-year term range, and sale and leaseback "for assets you already own" — Scotiabank, Scotia Leasing and Scotiabank commercial leasing and equipment financing. Price figures are Canadian dealer asking prices from IronFinance's own normalized dealer-inventory mirror, measured August 2026 across active, sellable, priced listings with country = CA; distinct dealer counts are published beside every aggregate and asking prices are not transaction prices. Advance percentages, terms and approval timing are directional practitioner conventions current as of August 2026 — they vary by lender, machine and province, and are not quotes or approvals. Tax treatment depends on your own class balances and the legal form of your agreement; confirm with your accountant before you sign.
Getting a Straight Read on the Iron You Already Own
The honest version of this decision needs two numbers you probably do not have yet: what a lender will actually advance against your machine, and what the sale does to your capital cost allowance class.
Neither is guesswork on our side. Send the machine — year, make, model, serial, hours — and what you still owe on it if anything, and we will tell you what it realistically supports, what the payment looks like, and whether the structure is worth doing at all. If the answer is that you are better off leaving the equity where it is, that is a useful answer too, and you will get it.
The tax question belongs with your accountant, but you should not be finding out about recapture from them after the money is spent. Ask before you sign.
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Frequently Asked Questions
What is an equipment sale-leaseback in Canada?
It is a financing transaction, not a sale in the ordinary sense. You sell a machine you already own to a lender or leasing company, and in the same closing you lease it back — so the machine never leaves your yard, never stops working, and never changes hands physically. What changes is the legal title and your balance sheet: you receive cash for the equipment, and you take on a monthly lease payment for the right to keep using it. Canadian contractors typically use it for working capital, to fund a bid or a payroll gap, to consolidate more expensive debt, or to free up cash for a down payment on another machine. At the end of the lease there is a buyout, and its structure matters enormously for tax — a $1 buyout is treated as a purchase, which changes who claims capital cost allowance.
How much can I raise in a sale-leaseback?
Less than the machine is worth on a dealer lot, and the gap is deliberate. A lender advances against what it could realistically recover if it had to repossess and resell the machine quickly — a forced-liquidation figure, not the retail asking price you would see on a listing. Then anything still owed on the machine comes off the top, because an existing lien has to be paid out and discharged at closing before a new lender will take its position. So a paid-off machine raises materially more than the same machine with a balance on it, and a machine you bought last year at retail will not raise what you paid. There is also usually a floor: Scotiabank publishes a $50,000 minimum transaction size for Scotia Leasing, which covers sale and leaseback on assets you already own, over terms of 2 to 7 years. The specific advance percentage varies by lender, by machine class and by how liquid that iron is in your province, so treat any number quoted before an appraisal as an estimate rather than an approval.
Does a sale-leaseback trigger a tax bill?
It can, and this is the single most commonly missed cost in the transaction. Selling the equipment is a disposition for income tax purposes. Under the Income Tax Act, you subtract from your capital cost allowance class pool the lesser of the net proceeds and the original capital cost of the property (s. 13(21), element F). Because CCA is pooled by prescribed class rather than tracked per machine, that subtraction does not automatically create a tax bill — it depends on what else sits in the same class. But if it drives the pool's balance negative at year end, s. 13(1) requires that excess be included in your income for the year. In plain terms: you can be taxed on money you have just borrowed, in the same year you borrowed it. It is not a reason to avoid the structure, it is a reason to have your accountant run the class before you sign.
Can I do a sale-leaseback if I still owe money on the equipment?
Often yes, but the existing loan gets paid out at closing and that comes out of your proceeds first. The new lender needs first position, which means the prior security interest has to be discharged from the provincial personal property registry — it will not fund behind an undischarged registration. Practically, the arithmetic is simple and unforgiving: your net cash is roughly the advance minus the payout. If you owe more than the machine will support, the deal does not work and no amount of structuring fixes it. Where it does work, insist the payout goes directly to the existing lender rather than through you, and confirm the discharge is actually registered before treating the file as closed.
Is a sale-leaseback a good idea, or a sign of trouble?
Both are true depending on the file, and it is worth being honest about which one you are. Used well it is ordinary, sensible asset management: you have equity locked in iron that is already paid for, and you convert some of it into working capital at a secured rate rather than borrowing unsecured at a much higher one, or taking a merchant cash advance. Used badly it is the last liquid asset in the business being spent to cover a shortfall that will still be there next quarter — and you will have added a payment while doing it. The test is what the cash is for. Funding a contract you have already won, or replacing more expensive debt, is a use that pays for itself. Covering an operating deficit with no plan for the deficit is not.
Should I check for liens on my own machine before applying?
Yes, and it surprises people how often something turns up. Search the provincial personal property registry by the machine's serial number and by your own exact legal business name — a registration filed against a name will not surface on a serial search and the reverse is also true. What you are looking for is a registration that was never discharged after you paid the machine off, which is common enough to be worth ruling out, and any general security agreement from an operating line or a past lender that already blankets your equipment. That second one catches people out: a GSA registered by your bank can cover the machine even though the bank never financed it specifically, and it will have to be subordinated or discharged before a sale-leaseback can close. The search itself is cheap — British Columbia publishes $7 for an online client search — and finding out now costs days rather than weeks.