Canada Revenue Agency
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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 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" on page 5 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 2011 fiscal period, use the GST rate of 5% or the HST rate of your specific province.
On July 1, 2010, the HST rate for Nova Scotia increased from 13% to 15%. As a result, a resident of Nova Scotia who is making lease payments in 2010 that are calculated on a monthly basis, will need to complete the chart twice; once for payments made before July 1, 2010, and the second for payments made after June 30, 2010. Add the two results to determine your eligible leasing costs for the year.
Example
Kim owns a pet store. Her business has a July 31 fiscal year-end. On February 1, 2011, 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 2011:
The following example will show you how to calculate your eligible leasing costs. Use Chart C on page 5 of Form T2125 to help you complete the following example.
| Monthly lease payment | $ 500 | |
| Lease payments for 2011 | $ 3,000 | |
| Manufacturer's suggested list price | $ 33,000 | |
| Number of days in 2011 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 | |
| Total lease charges incurred in Kim's 2011 fiscal period for the vehicle |
$ 3,000 | 1 |
| Total lease payments deducted in fiscal periods before 2011 for the vehicle |
$ 0 | 2 |
| Total number of days the vehicle was leased in 2011 and previous fiscal periods |
181 | 3 |
| Manufacturer's list price | $ 33,000 | 4 |
| The amount on line 4 or ($35,294 + $4,588), whichever is more ($39,882× 85%) |
$ 33,900 | 5 |
| ($904 × 181) ÷ 30 | $ 5,454 | 6 |
| ($33,900 × $3,000) ÷ $33,900 | $ 3,000 | 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 this is your situation, you will not be able to use the chart "Eligible leasing costs for passenger vehicles," on
page 5 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 is, or the deposits are, refundable; and
- the total of the deposits is more than $1,000.
