Motor vehicle - Leasing costs
You can deduct amounts you incur to lease a motor vehicle you use to earn income.
When you use a passenger vehicle to earn income, there is a limit on the amount of the leasing costs you can deduct. To help calculate your eligible leasing costs, use "Part 19 - Eligible leasing costs for passenger vehicles" of Form T2125, Statement of Business or Professional Activities.
If the lease agreement for your passenger vehicle includes items such as insurance, maintenance, and taxes, add the amounts for these items in the total lease charges entered on line 1 of Part 19.
Generally, leases include taxes (GST and PST, or HST), but not items such as insurance and maintenance. You have to pay these amounts separately. Include the taxes on line 1 of Part 19, and list the items such as insurance and maintenance on the appropriate lines of "Part 17 - Motor vehicle expenses."
For your 2016 fiscal period, use the GST rate of 5% or the HST rate of your specific province.
To show you how to calculate your eligible leasing costs, complete the following example using Part 19 of Form T2125.
Kim owns a pet store. Her business has a July 31 fiscal year-end. On February 1, 2016, she started leasing a car that is a passenger vehicle. The PST rate for her province is 8% and the GST rate is 5%. Kim entered the following for 2016:
Monthly lease payment
Lease payments for 2016
Manufacturer's suggested list price
Number of days in 2016 she leased the car
GST and PST on $30,000
GST and PST on $35,294
GST and PST on $800
Kim makes the following calculation:
Total lease charges incurred in Kim's 2016 fiscal period for the vehicle
Total lease payments deducted in fiscal periods before 2016 for the vehicle
Total number of days the vehicle was leased in 2016 and previous fiscal periods
Manufacturer's list price
The amount on line 4 ($33,000) or ($35,294 + $4,588), whichever is more, multiplied by 85%:
[($800 + 5% GST and 8% PST) x line 3] ÷ 30
[($30,000 + 5% GST and 8% PST) × line 1] ÷ line 5
Kim's eligible leasing cost is either line 6 or 7, whichever amount is less. In this case, her allowable claim is $3,000.
Repayments and imputed interest
When you lease a passenger vehicle, you may have a repayment owing to you, or you may have imputed interest. If so, you will not be able to use "Part 19 - Eligible leasing costs for passenger vehicles," of Form T2125.
Imputed interest is interest that would be owing to you if interest were paid on money deposited to lease a passenger vehicle. You calculate imputed interest for leasing costs on a passenger vehicle only if all the following apply:
- one or more deposits were made for the leased passenger vehicle;
- the deposit(s) is / are, refundable; and
- the total of the deposit(s) is / are more than $1,000.
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