Leasing Cost Limits

Definition

Income Tax Act s.67.3 limits deductible passenger-vehicle lease charges. The calculation compares a cumulative daily limit with a second limit based on the manufacturer's list price. Paying through a corporation does not remove these restrictions. Income Tax Act s.67.3

The two limits

For a new lease entered into in 2026, Finance Canada announced a $1,100 monthly limit before applicable sales tax, and the passenger-vehicle capital cost amount is $39,000 before tax. The list-price threshold corresponding to that capital amount is $39,000 ÷ 85%, approximately $45,882.35 before tax. These are different amounts; $40,000 is not the 2026 capital cost or list-price threshold. Finance Canada's 2026 automobile limits

For an ordinary lease without refundable deposits over $1,000 or reimbursements, the structure is:

Limit A is cumulative from the start of the lease, followed by a deduction for prior-year lease claims. It is not simply the days in the current year for an older lease. Imputed interest on refundable deposits over $1,000 and reimbursements can reduce the permitted amount further under s.67.3; CRA's simple chart cannot be used unchanged in those cases.

CRA's published Chart C illustrates the calculation with the amounts applicable to the lease year. Include taxes consistently and account for recoverable GST/HST rather than claiming a tax credit and the same expense. CRA leasing calculation and deposit rules

Example: a new 2026 lease

An Alberta sole proprietor who is not registered for GST leases a passenger sedan on March 1, 2026. The lease payment is $1,400 plus $70 GST a month. The manufacturer's list price is $52,000. There are 306 lease days through December 31, ten payments, no prior-year deductions, no refundable deposit and no reimbursements. A log supports 60% business use.

The monthly limit including GST is $1,100 × 1.05 = $1,155. The capital amount including GST is $39,000 × 1.05 = $40,950. The tax-adjusted list-price threshold is ($39,000 ÷ 85%) × 1.05, approximately $48,176.47, which is below the $52,000 list price.

1. Actual lease charges: $1,470 × 10 = $14,700.
2. Limit A: $1,155 × 306 ÷ 30 = $11,781.
3. Limit B: $14,700 × $40,950 ÷ (85% × $52,000) = approximately $13,619.12.
4. Eligible lease cost: the lowest amount is $11,781.
5. Business deduction: $11,781 × 60% = $7,068.60.

Insurance and maintenance paid separately remain separate vehicle expenses. If included in the lease charge, CRA includes them in that charge for the lease calculation. Do not add them a second time.

Scope and common mistakes

• Apply the limit for the year the lease was entered into. A 2024 lease uses its own limits; it does not automatically switch to 2026 amounts.
• Test both limits. The list-price reduction can restrict a lease even when its monthly payment is below the monthly ceiling.
• Leasing an electric car does not give the lessee the $61,000 Class 54 purchase ceiling. A leased vehicle that would qualify as a zero-emission passenger vehicle if owned follows the passenger-vehicle leasing restrictions. CRA zero-emission vehicle definitions
• A van or pickup is not automatically exempt. Seating, use and the vehicle-definition tests determine whether it is a passenger vehicle. See CCA Class 10. Passenger Vehicles.
• For an employer-provided vehicle, assess personal employee or shareholder use separately. Multiplying a company's lease expense by a personal-use percentage is not a substitute for calculating the automobile benefit.

Related concepts

• Vehicle Expense
• CCA Class 10. Passenger Vehicles
• Business Expense Principle (ITA 18)