Automobile Expenses – Non-Deductible Leasing Costs and Other Expenses

This worksheet allows you to determine the non-deductible leasing costs for passenger vehicles as per section 67.3 ITA and section 7307 ITR.

The terms “Automobile” and “Passenger vehicle” are defined in subsection 248(1) ITA.

Non-deductible leasing costs

To allow the program to correctly calculate the non-deductible expenses amount, the following information should be provided:

the date the lease began;
the date the lease terminated (or the date where lease agreement was cancelled when this date occurs before its original due date);
the GST/PST combined rate or HST rate;
the actual lease charges paid or payable for the fiscal year and, if this is not the first year of the lease, the lease charges already deducted in the prior tax years;
the manufacturer's suggested price; and if applicable
the amount of interest on refundable amounts in excess of $1,000 and that are deemed earned or the reimbursements receivable.

The lease agreement of a passenger vehicle can include charges such as insurance, maintenance and taxes. You must therefore include them in the global leasing charges.

Calculation of the non-deductible leasing costs based on the costs deducted in the GIFI (Lines 15 to 17)

In cases where the amount of a vehicle leasing costs deducted in the calculation of the net income (or net loss) of the GIFI differs from the amount of leasing costs used in the calculation of the deductible leasing costs under section 67.3 of the ITA, you can use lines 15 to 17 of the form to calculate the non-deductible leasing costs to be included on line 122 of Schedule 1.

Date lease began

This date is important as it enables all calculations.

The program only supports the dates where the lease began after December 31, 1999. If the date is prior to January 1, 2000, manually modify the monthly limit amounts and/or the eligible cost.

When the date where the lease began is after the corporation’s year-end date, the calculations will be performed normally. However, a diagnostic will indicate that the non-deductible lease charge amount will be ignored for the current year with regard to this automobile. Furthermore, the information related to this automobile will be retained when the client file is rolled forward.

Date lease terminated

This date is important to enable the various calculations, in particular when the lease agreement is cancelled before its due date in the corporation’s fiscal year. Furthermore, this information is also used for the purpose of rolling forward the client file.

Note: If no date where the lease agreement terminated is entered, the program will presume that this date is automatically ending after corporation’s fiscal year end and all calculations will be performed normally.

When the lease agreement is cancelled before its due date in the corporation’s fiscal year, the date where the lease agreement was cancelled must be entered. Moreover, when a date is already entered on this line, you must replace it with the date the lease agreement was cancelled.

GST/PST combined rate or HST rate (line A and line B)

The amount of taxes applicable on the monthly limit must be calculated using the tax rates applicable in the taxation year, while the amount of taxes applicable on the eligible cost limit must be calculated using the tax rate in effect at the beginning of the lease (this rate is fixed for the entire duration of the lease). In the event where changes to tax rates are made by tax authorities after the beginning of the lease or during the taxation year, both these rates can differ.

Enter on line A, the GST/PST combined rate or the HST rate applicable on the date the lease began. Usually, this rate is used when calculating the amount of taxes on the eligible cost of the manufacturer’s suggested price (line 5), on the monthly limit of the first limit (line 11) and on the eligible cost of the second limit (line 12)

Calculating the amount of taxes on the eligible cost of the manufacturer’s suggested price (line 5) and on the eligible cost of the second limit (line 12)

The combined rate of taxes that must be used is the rate applicable at the beginning of the lease. The program uses the rate on line A, which does not vary for the entire duration of the lease.

Calculating the amount of taxes on the monthly limit of the first limit (line 11)

The program uses the rate on line A when this rate has not been modified by tax authorities since the beginning of the lease. When the combined rate applicable at the start of the taxation year is different from the rate at the beginning of the lease (line A), this rate must be entered on line B. If the rate on line B has not been modified by tax authorities in the taxation year, the program will use the rate on line B. See example 1 below.

Select this box if a change in the GST/PST or HST rate occurred in the taxation year (if applicable, complete the table below as well)

When there has been a rate change in the taxation year, this box must be selected and the Calculation table for taxes applicable on the monthly limit when there was a change in the GST/PST or HST rate in the taxation year must be completed based on the situation in order for the program to be able to calculate the amount of taxes applicable on the monthly limit amount (see example 2 below). In this situation, the tax amount on line 11 will be equal to the amount on line Total taxes applicable on the monthly limit for the taxation year of the table.

Rolling forward the GST/PST combined rate or the HST rate to line B

During roll forward, if the lease is still in effect at the end of the taxation year and the box indicating that there has been a change of rate in the year is selected, the last rate of the applicable line in the table will be rolled forward to line B.

If the lease is still in effect at the end of the taxation year, a rate is entered on line B and the box indicating that there has been a rate change in the taxation year is not selected, the rate on line B will be rolled forward to this same line.

Example 1

Scenario

Corporation’s taxation year: from January 1, 2012, to December 31, 2012

Lease entered into in Nova Scotia

Date lease began: June 1, 2010

Date lease terminated: May 31, 2015

HST rate applicable at the beginning of the lease (June 1, 2010): 13.000%

HST rate applicable at the beginning of the taxation year (January 1, 2012) different from the rate at the time the lease began: 15.000%

There was no rate change by tax authorities in the taxation year.

Processing in the program

The 13.000% rate must be entered on line A. This rate will be used when calculating amount of taxes on the eligible cost of the manufacturer’s suggested price (line 5) and on the eligible cost of the second limit (line 12).

The 15.000% rate must be entered on line B. This rate will be used when calculating amount of taxes on the monthly limit of the first limit (line 11).

When rolling the client file forward, the rate rolled forward to line A will be 13.000% and the rate rolled forward to line B, GST/PST combined rate or HST rate at the beginning of the taxation year, if different from the rate at the beginning of the lease began (line A), will be 15.000%.

Example 2

Scenario

Corporation’s taxation year: from July 1, 2011, to June 30 2012

Lease entered into in Québec

Date lease began: July 1, 2010

Date lease terminated: June 30, 2015

GST/QST combined rate at the beginning of the lease (July 1, 2010): 12.875%

GST/QST combined rate at the beginning of the taxation year (July 1, 2011) different from the rate at the beginning of the lease: 13.925%

There has been a rate change by tax authorities in the taxation year. The 13.925% rate increased to 14.975% on January 1, 2012.

Processing in the program

The 12.875% rate must be entered on line A. This rate will be used when calculating amount of taxes on the eligible cost amount of the manufacturer’s suggested price (line 5) and on the eligible cost of the second limit (line 12).

The 13.925% rate must be entered on line B.

The box Select the box if a change in the GST/PST or HST rate occurred in the taxation year (if applicable, complete the table below) must be selected, and the lines in the table must be completed as described below.

The 13.925% rate (rate from line B) is entered by the program in the GST/PST combined rate or HST rate column for the first part of the taxation year. Because this rate applies to the period of July 1, 2011, to December 31, 2011, i.e. a period of 184 days, enter 184 in the Prorate based on the number of days of the lease in the taxation year column.

The 14.975% rate must be entered in the GST/PST combined rate or HST rate column for the second part of the taxation year. Because this rate applies to the period of January 1, 2012, to June 30, 2012, i.e. a period of 182 days, enter 182 in the Prorate based on the number of days of the lease in the taxation year column.

When rolling forward the client file, the rate rolled forward to line A will be 12.875% and the rate rolled forward to line B, GST/PST combined rate or HST rate at the beginning of the taxation year, if different from the rate at the beginning of the lease began (line A), will be 14.975%.

Lease charges already deducted

Represents the lease charges already deducted in the prior tax years.

Number of days the automobile was rented since the lease began

To calculate the number of days the automobile was rented, the program calculates the number of days included in the following period:

start of the period: the date the lease began;
end of the period: the corporation’s fiscal year-end date or the date the lease terminated if this date is prior to the end date of the fiscal year (see the note above)

Monthly limit and maximum eligible cost used by the program

Date the lease began	Monthly limit	Maximum eligible cost
Before 2022	$800	$30,000
2022	$900	$34,000
2023	$950	$36,000
2024 and after	$1,050	$37,000

Interest on refundable amounts in excess of $1,000 and that are deemed earned since lease began

Since lease began: represents interest charged based on the prescribed rate on any refundable deposit of more than $1,000 for the current year and prior years

In the current year: represents interest charged based on the prescribed rate on any refundable deposit of more than $1,000 for the current year

The prescribed rate of interest for the relevant period is described in section 4301 ITR. The rate is determined quarterly.

Reimbursement receivable

Since lease began: represents the total reimbursement that became receivable for the lease for the current year and prior years.

In the current year: represents the total reimbursement that became receivable for the lease for the current year.

To help you calculate those amounts and to refer to a detailed example, please consult the Interpretation Bulletin IT-521R, Motor Vehicle Expenses Claimed by Self-Employed Individuals.

Other non-deductible expenses for this automobile

This line and the related description field allow you to enter all other expenses not covered by the program with regard to the automobile.

The program assumes that the automobiles are used exclusively for business purposes. However, when they are used for personal purposes, adjustments to the non-deductible leasing costs calculated by the program may be required. You can use this cell to make the appropriate adjustments.

This cell can also be used to exclude the personal portion of the other non-deductible expenses related to this automobile based on the number of kilometres travelled for personal purposes versus business purposes. You can also attach a schedule to the numerical cell to explain the data in the cell (Jump Code: ATTS). Also note that a negative value can be entered in this cell.

Roll forward

All information relating to the rental of an automobile will be rolled forward as long as the date where the lease terminated (or the date where lease agreement was cancelled when this date occurs before the original due date) is not expired before the corporation’s fiscal year end.

If no date where the lease agreement terminated is entered, the program will presume that this date is automatically ending after the corporation’s fiscal year end and all information with regard to this automobile will be rolled forward.

Applicability of the form

This form becomes applicable as soon as leasing charges for an automobile are entered and a lease charge amount and other expenses is not deductible based on the amount calculated by the program on line 14 or line 17 of the form.