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.

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

For your 2015 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 Chart C of Form T2125, Statement of Business or Professional Activities.

Example

Kim owns a pet store. Her business has a July 31 fiscal year-end. On February 1, 2015, 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 2015:

Monthly lease payment

$500
 

Lease payments for 2015

$3,000
 

Manufacturer's suggested list price

$33,000
 

Number of days in 2015 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 2015 fiscal period for the vehicle

$3,000
1

Total lease payments deducted in fiscal periods before 2015 for the vehicle

$0
2

Total number of days the vehicle was leased in 2015 and previous fiscal periods

181
3

Manufacturer's list price

$33,000
4

The amount on line 4 ($33,000) or ($35,294 + $4,588), whichever is more, multiplied by 85%:

$33,900
5

[$800 + (5% GST + 8% PST) x line 3] ÷ 30

$5,454
6

[$30,000 + (5% GST + 8% PST) × line 1]  ÷ line 5

$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 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.

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