Let \(\mathcal {L}\) be the Lipschitz space of a tree and \(C_{\varphi }\) be the composition operator on \(\mathcal {L}\) . In this paper, we first investigate compact operators of the form \(Q:=C_{\varphi _1}-\sum \nolimits _{i=2}^{m} C_{\varphi _i}\) on \(\mathcal {L}\) . Particularly, compact differences of composition operators are characterized. As an application, we also show that the compact difference cancellation is possible for linear combinations of two composition operators by constructing an explicit example of a compact difference formed by two distinct noncompact composition operators on \(\mathcal {L}\) . Subsequently, we completely characterize the compactness of a linear combination of three composition operators on \(\mathcal {L}\) . As one consequence of this characterization, we show that there is no cancellation property of compact double differences induced by three distinct composition operators on \(\mathcal {L}\) .