Motor vehicle - Leasing costs

You can deduct amounts you incur to lease a motor vehicle you use to earn income. Include these amounts on line 9281 - Motor vehicle expenses (not including CCA) of Form T2125, Statement of Business or Professional Activities.

When you use a passenger vehicle to earn income, there is a limit on the amount of the leasing costs you can deduct. To calculate your eligible leasing costs, complete "Chart C - Eligible leasing costs for passenger vehicles" of Form T2125.

The lease agreement for your passenger vehicle may include items such as insurance, maintenance, and taxes. In this case, include them as part of the lease charges on line 1 when you complete Chart C.

Note

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 when you complete Chart C, and list the items such as insurance and maintenance on the appropriate lines of "Chart A - Motor vehicle expenses."

For your 2013 fiscal period, use the GST rate of 5% or the HST rate of your specific province.

The following example will show you how to calculate your eligible leasing costs. Use Chart C of Form T2125, Statement of Business or Professional Activities  to help you complete the following example.

Example

Kim owns a pet store. Her business has a July 31 fiscal year-end. On February 1, 2013, 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 2013:

Monthly lease payment
$ 500
Lease payments for 2013
$  3,000
Manufacturer's suggested list price
$ 33,000
Number of days in 2013 she leased the car
181
GST and PST on $30,000
$ 3,900
GST and PST on $35,294
$ 4,588
GST and PST on $800
$ 104

Kim makes the following calculation:

Total lease charges incurred in Kim's 2013 fiscal period for the vehicle
$ 3,000 Line 1
Total lease payments deducted in fiscal periods before 2013 for the vehicle
$ 0 Line 2
Total number of days the vehicle was leased in 2013 and previous fiscal periods
181 Line 3
Manufacturer's list price
$ 33,000 Line 4
The amount on line 4 ($33,000) or ($35,294 + $4,588), whichever is more, multiplied by 85%:
$ 33,900 Line 5
[$800 + (5% GST + 8% PST) x line 3] ÷ 30
$ 5,454 Line 6
[$30,000 + (5% GST + 8% PST) × line 1]  ÷ line 5
$ 3,000 Line 7

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 "Chart C - 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.

Forms and publications

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