Small Business Tips
If you lease a passenger vehicle to earn income, you can claim a "portion if not all" of your lease payments on your taxes. Keep reading to find out what you need to know about deducting car lease payments on your next CRA tax return.
Are car lease payments tax deductible?
Individuals who lease a passenger vehicle for work-related purposes can deduct part of their leasing costs on their tax return. That being said, there is a limit on the amount you can claim. This limit is based on a calculation involving your lease payments and the value of your car. To figure out your eligible leasing costs, use Chart C of Form T2125, Statement of Business or Professional Activities. Look for the heading that reads, "Eligible leasing cost for passenger vehicles." In most cases, your lease will include sales taxes (GST/PST/HST) but will exclude insurance and maintenance for your vehicle. For the purposes of filling out Form T2125, make sure to enter your lease payment amounts before taxes on lines 19 and 20. You can deduct vehicle insurance and maintenance costs under Chart A (Motor vehicle expenses) of the same form.
How to calculate your car lease deduction
To determine the amount of your car lease deduction, you need to know the following:
- The total lease charges you paid during the tax year
- The total lease payments deducted before the current tax year for your vehicle
- Number of days the vehicle was leased during the current tax year and in previous tax years
- Manufacturer's suggested list price for the vehicle
- The GST and PST rates for your province.
Scenario: calculating car lease deduction
Let's say you live in Ontario and decide to lease a car to become an Uber driver. You would calculate your eligible leasing cost as follows: Your monthly lease payment is $500. That means you spent $3,000 on lease payments during the fiscal year. Enter this amount on line 19 of Chart C. You leased the car on July 3, and your personal tax year ends December 31. This means you leased your car for a total of 181 days during the fiscal year. Enter this number on line 21. The manufacturer's suggested list price for the car is $33,000. Enter this amount on line 22. Next, add GST and PST or HST to $35,294* and multiply that amount by 85%. In Ontario, the HST (13%) on $35,294 is $4,588. This gives you a total of $33,900 - enter this amount on line 23. *If the suggested list price for your vehicle was more than $35,294, you would base your calculation on this amount. Now, add GST and PST to $800 and multiply that amount by the total number of days you leased your vehicle during the year, and divide the total by 30. In this case, the formula will look like this: [($800 + 13%) x 181] √∑ 30 = $5,454. If you claimed your lease payments last year, subtract last year's amount (line 20). Enter this number on line 24. Finally, add GST and PST or HST to $30,000 and multiply this amount by your total lease charges for the year and divide the total by the amount you entered on line 23. Here, the formula will be: [($30,000 + $3,900) √ó 3000] √∑ $33,900 = $3,000. Enter this number on line 25.
