Hello,
I need to know about CCA Claim on a transport vehicle which is leased for 5 years, we have an option to buy at end of lease period. It’s covering 90% of the vehicle price in lease payments. Lease payments are inclusive of Principal+ Interests + GST component. Can we claim the CCA in the year of purchase of transport vehicle.
If it is lease-to-own you got the deduction through the lease payments.
You can claim CCA on the buyout amount.
Not knowing all the details, I would assume if you then sell the vehicle, you would have a capital gain on the difference between the selling price & buyout amount.
Thank you for your reply,
Means we cannot claim CCA on the full purchase value at the time of purchase.
But I am inserting a link of ASPE 3065. Kindly check that and make me clearer on the topic.
What they are describing is how to deal with a capital lease in the financial statements. So it refers to depreciation, not CCA.
For F/S statement purposes you record the value of the purchase as a capital assets and record the inherent interest over the term of the lease and record depreciation.
Then on the Tax Return, you claim the actual lease payments instead of the deprecation and interest.
CCA is a tax return item. You can on claim CCA on the buyout amount. Otherwise everybody would be doing this and double dip. That clearly can’t be the intent of the Act.
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Wondering how that would be a double dip, since the lease payments would be reversed to the lease liability, of course with the interest component.
Maybe I am off the track somewhere.
I assumed the question was what would happen after the buyout.
Say the capital lease was 5 years. One is supposed to claim the lease payments on the tax return in those years. I doubt you are reversing the lease payments in year 6 and then claim CCA on the tax return on the full amount. So based on my assumption there is no reversal [there shouldn’t be], if you claim CCA on the full amount of the vehicle, you would be double dipping.
We are not claiming Lease payments in tax return, we are deducting the lease payments towards lease liability. How it can be a double dip. We are treating it like a Loan on vehicle and we claim depreciation on vehicle and also interest component in loan payments.
I see what you mean. But my original point was that with a capital lease, despite the fact it is treated as a purchase with loan payments in the F/S, you should claim the actual lease payments on the T2. So no CCA on the T2. Once there is a buyout, the CCA is claimed on the buyout amount.
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Ok Thank you for your replies.
Yes, you can, if you file a T2145 as noted here:
So to understand this correctly both the lessor and lessee must sign this form right?
And this would mean that one cannot deduct lease payments. But it will be CCA and interest on the tax return.
I really wonder if vehicle companies would sign such forms.
I’ve seen it. I have a client who runs a small trucking company (him and 2 employees), and it’s done on his vehicles.
Your clip refers to a normal lease, not a capital lease.
A capital lease records an asset against the lease liability and as such has CCA applied on the tax return.
A normal lease (where the vehicle will be returned at lease end) you deduct the lease payments on the return and have no asset, so no CCA
Here is a link from MNP re capital leases:
Accounting: For capital leases you will be considered to have assumed the benefits and liabilities of ownership of the loader for the term of the lease. This assessment is based on the length of the lease, the total lease payments required, and the ending purchase price. As a result, the loader leased, as well as the liability that must be repaid over the term of the lease, will be recorded on your balance sheet. As control of the loader is assumed, amortization of the loader will be recorded for a capital lease, similar to a purchase. Unlike an operating lease, capital lease payments are treated similar to loan repayments, with only the interest portion of the lease being expensed.
Tax: While the loader will show on your balance sheet for accounting purpose, CCA will not be calculated for tax purposes. However, similar to the operating lease, the full portion of the lease payment is deductible for tax purposes (interest and principal).
There is more info how to make the entries in the linked article.
P.S. in the article, the headings in the summary at the bottom are not lined up properly, but they should be lined up with the 3 amount columns.
It clearly shows that MNP believes that capital leases are treated different for accounting and tax purposes.
The only way you can claim CCA on a capital lease is if you file the T2145 as @Nezzer mentioned.
Yes, I believe this all changed in June of 2001 with the cancellation of IT-233R and the CRA’s issuance of Income Tax Technical News (“ITTN”) No. 21. ITTN 21 has later been removed from the CRA website (citing redundancy).
Where the automatic transfer of title upon receipt of the last monthly payment is in fact a right to purchase the property at the expiry of the agreement if the lessee has met all the conditions under the agreement, absence a sham, we will not consider that a sale has in fact occurred until the right to purchase is exercised. The Supreme Court held in Shell Canada Ltd. v. The Queen, 99 DTC 5682 that the economic realities of a situation cannot be used to recharacterize a taxpayer’s bona fide legal relationships. It held that absent a specific provision of the Act to the contrary or a finding that there is a sham, the taxpayer’s legal relationships must be respected in tax cases. Thus, it is our view that the determination of whether a contract is a lease or a sale is based on the legal relationships created by the terms of the particular agreement, rather than on any attempt to ascertain the underlying economic reality. The CRA announced in Income Tax Technical News No. 21, dated June 13, 2001, that “. . . it is our view that the determination of whether a contract is a lease or a sale is based on the legal relationships created by the terms of the particular agreement, rather than on any attempt to ascertain the underlying economic reality. Therefore, in the absence of a sham, it is our view that a lease is a lease and a sale is a sale.”
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Something else to ponder…
If I buy/lease a $200,000 highway tractor from Peterbuilt and the contract is drawn up as a lease how does PACCAR Financial report the tax entry on their end? Does it get reported as a sale/cost of sales entry or does it get reported as monthly leasing revenue and CCA taken on the fixed asset?
Is it possible that both the lessor and lessee are claiming CCA on the same asset if the trucker capitalized the lease on their T2?
Best advice to clients is “stop leasing stuff”
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Hi, can anyone advise what will be the adjustments on the T2 Schedule 1 for a capital lease, i.e. which columns to reverse the capitalized interest on the income statement and which column to enter the deduction actual lease payments ? Thanks
Hi all, further to my tax questions on the capital lease, can anyone advise me the proper lease payment amount to be claimed on the T2 schedule 1 under the following term : Year 1 : downpayment $20,000 and with 6 monthly payments of $1000, Year 2 : 12 monthly payment of $1000, Year 3: 12 monthly payment of $1,000, Year 4 : 6 monthly payment of $1,000 and the lease ends, purchase option exercised and the equipment is bought for $5000.
My question is : what will be the lease payment amount to be claimed in Year 1, Year2, Year 3 and Year 4?