(Adds details about deal terms, share prices, background)

By Paritosh Bansal

NEW YORK, May 30 (Reuters) - Canadian equipment finance company Element Financial Corp EFN.TO is close to a deal to buy PHH Corp's PHH.N auto fleet leasing business for about $1.35 billion in cash, according to a source familiar with the matter on Friday.

The boards of the two companies are expected to meet this weekend to approve the transaction, the terms of which are being finalized, the source said. A deal for the unit, PHH Arval, could be announced as soon as Monday, the source said.

Element, which provides financing for industrial, aerospace and automotive equipment leasing, declined to comment. PHH could not immediately be reached.

PHH shares were down 0.3 percent at $25.37 while Element shares were down 0.5 percent at C$13.38 on Friday afternoon.

Reuters reported on May 21 that PHH and Element were in exclusive negotiations for a deal. The transaction is structured to include significant tax benefits. ID:nL1N0O71M1

PHH has deferred tax liabilities - which amount to expected future tax payments - linked to the fleet business of $798 million as of Dec. 31, 2013, according to KBW analysts.

Under purchase accounting, the deferred tax liabilities essentially disappear, boosting the company's equity, the source said.

PHH said in February it was considering separating or selling its mortgage and auto fleet leasing businesses.

It said in a statement it was in talks about a potential sale of the fleet leasing business after the Reuters story earlier this month, but declined to provide further details.

(Editing by Matthew Lewis)

((paritosh.bansal@thomsonreuters.com)(+1 646 223 6113)(Reuters Messaging: paritosh.bansal.thomsonreuters.com@reuters.net))

Keywords: PHH ELEMENT/