Hello community,
I’m seeking guidance on the appropriate GIFI code for recording machinery leasing costs for a corporation. Can anyone help me identify the correct code in schedule 125? The only code I found in the CRA guide is 9765, which pertains to machinery lease expenses for farms.
Thank you!
You should first determine if it is a capital lease or straight lease.
Capital leases should be recorded as an asset on the F/S, but an adjustment should be made on Schedule one to claim it as a lease. [GIFI 1910 to 1917 for the capital portion of the asset and GIFI 8710 for the interest included in the lease payment]
For straight leases, what about GIFI 8410?
where on sch. 1 do you make this adjustment if you have a capital lease? Do you just make an additional deduction for the capital portion (since the interest portion will already be included in the F/S & Sch net income line)?
On Schedule 1, Line 395 I enter something like “Principal portion of Capital Lease Payments”
I think that the adjustment entries on the T2 Schedule 1 for a capital lease will be (1) adding back the interest on the capital lease reported on the income statement in column 119 and (2) deducting the actual lease payments in column 395.
You can’t add back something you never expensed in the first place. Principal portion of lease payments is a balance sheet item, not income statement. You add back interest only. Deduct 100% of lease payments.
@jhd.hemeon
Technically you are correct.
So if total lease payments of for example $ 15,000 were recorded as $ 15,000 loan payments and $ 2,500 interest was added to the loan you would have a reduction of the loan in the amount of $12,500.
[The “loan” is the lease that was setup as a loan in the F/S]
You can either reverse the interest on line 295 and deduct the full lease payments on line 395, or just deduct the additional $12,500 on line 395 with the note "principal portion of lease payments].
You would end up with a deduction of $15,000 in both cases.
@lokki I don’t believe that Line 119 is used for the reversal of this kind of interest. Capitalized interest is the unpaid interest added to the balance of the loan. Capital interest occurs when the borrower is not making payments on the loan and interest continues to accrue.
Hi Rein, I believe you are right, so I will add back the interest on the capital lease in column 295 and describe it as “Interest on capital lease”, then deduct the actual lease payments in column 395 as “Capital lease expenses”. Thanks for your advice.
deleted by moderator
Sorry, wrongly sent it to the group.