Lump-sum lease payments

Lump-sum amounts you pay the lessor at the beginning or end of a lease that are not a payment to buy the automobile will affect the standby charge for the automobile.

Prorate the lump-sum payment you make at the beginning of a lease over the life of the lease and add it to the leasing cost.

If you make a lump sum payment at the end of a lease, the CRA considers the payment to be a terminal charge. This means your lease costs should have been higher and the standby charge for the automobile has been understated. In this situation, you can use one of the following methods:

• add the terminal charge to the lease costs in the year you end the lease
• prorate the payment over the term of the lease and amend the T4 or T4A slip of the employee who used the automobile, as long as they agree and can still ask for an income tax adjustment for the years in question

Each employee can then write to any tax services office or tax centre and ask to adjust their income tax and benefit returns for those years.

A lump sum payment you receive from the lessor at the end of a lease is considered to be a terminal credit. When this happens, the standby charge for the automobile has been overstated since the lease costs should have been lower. In this situation, you can use one of the following methods:

• deduct the terminal credit from the lease costs in the year you end the lease
• amend the T4 or T4A slip of the employee who used the automobile and provide a letter explaining the reduction, as long as the employee agrees and can still ask for an income tax adjustment for the years in question

Each employee can then write to any tax services office or tax centre and ask to adjust their income tax and benefit returns for those years.

Whichever method you use when you make or receive a lump-sum payment at the end of the lease, include the GST/HST and PST.

Related links

• Calculating automobile benefits