Leasing Cost Limits

Definition

ITA s.67.3 restricts the deductible portion of lease payments on a passenger vehicle. Rather than a single hard cap, the Act applies the lesser of two formulas: one that references a prescribed monthly dollar amount (Formula A) and one that references the manufacturer's list price (Formula B). The rule prevents taxpayers from using leases to sidestep the capital cost ceiling that would otherwise limit CCA on purchased passenger vehicles.

Key rules

• Scope: the rule applies only to passenger vehicles as defined in s.248(1), meaning motor vehicles designed mainly to carry individuals with seating for no more than nine. Zero-emission passenger vehicles have their own separate caps in Reg 7307(3).
• Formula A (monthly cap): the base is (prescribed monthly amount + applicable GST/HST/PST on that amount) × number of days leased in the fiscal year / 30, less amounts already deducted for interest on deposits and reimbursements.
• Formula B (list price cap): the base is (total lease charges in the year × the prescribed list price ceiling × 1.XX factor) divided by 85% of the greater of (manufacturer's list price, prescribed list price ceiling). The factor effectively allows the full lease deduction up to the ceiling list price and grinds it down above.
• 2026 prescribed amounts (verify with CRA prior to filing): base monthly lease cap of $1,050 plus applicable sales tax; prescribed list price ceiling of $40,000 for Formula B in respect of vehicles leased after 2025. Zero-emission passenger vehicles use a higher set of thresholds.
• Sales tax treatment: the monthly cap is grossed up by the GST/HST/PST that applies to the lease, reflecting the cost actually paid.
• Daily proration: if the lease starts partway through a fiscal year, the monthly cap is prorated on a 30-day basis.
• Business-use %: after the s.67.3 cap is applied, the remaining allowable amount is further multiplied by the logbook-supported business use percentage.

Example

Oceanside Marketing Inc. leases a 2026 sedan on March 1, 2026. Monthly lease is $1,400 plus 5% GST and 7% BC PST ($1,568 all-in). Manufacturer's list price is $52,000. Business use is 60%. Fiscal year-end is December 31, 2026 (306 days of use).

Formula A cap:

• Monthly base: $1,050 + 5% GST ($52.50) + 7% PST ($73.50) = $1,176
• Annual cap: $1,176 × 306 / 30 = $11,995

Formula B cap (illustrative, assumes $40,000 ceiling):

• Total lease payments in 2026: $1,568 × 10 months = $15,680
• Cap = $15,680 × $40,000 / (85% × $52,000) = $15,680 × $40,000 / $44,200 = $14,189

s.67.3 allowable = lesser of $11,995 and $14,189 = $11,995 Business-use portion = $11,995 × 60% = $7,197 deductible in 2026.

Common mistakes

• Deducting the full monthly lease payment because the lessee is a corporation. The s.67.3 cap applies to individuals and corporations equally.
• Skipping Formula B when the MSRP is well above the prescribed ceiling. The list price grind can be the binding constraint on higher-end vehicles.
• Forgetting the 30-day prorate when the lease begins partway through the year.
• Using the pre-2022 prescribed monthly cap. The limit has increased several times and must be verified for the specific year.
• Applying the passenger vehicle rules to a van used primarily to transport goods. That is typically a motor vehicle (Class 10), not a passenger vehicle, and falls outside s.67.3.

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