Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Is an employee permitted to claim all or part of lump sum lease payment that would be greater than the 67.3 limitation?
Position: YES
Reasons: IT-522 par 9, fairness for cash basis employees who cannot use 18(9) to average out the up-front deduction, provided amount meets the 67.3 limitation if amount is averaged out and vehicle is within the other restrictions of the section ie $ 30,000 vehicle cost and $800 mo. lease.
2003-005179
XXXXXXXXXX C. Tremblay, CMA
(613) 957-2139
April 26, 2004
Dear XXXXXXXXXX,
Re: Lump Sum Lease Payment
This is in reply to your letter of December 2, 2003, regarding the deductibility of lump sum lease payments for a passenger vehicle. You seek comments and guidance on whether there is a choice on the treatment of up-front lease payments. Recent technical interpretations mention that a lump sum payment must be amortized over the term of the lease while paragraph 9 of Interpretation Bulletin, IT-522R may allow for a deduction of the up-front amount.
Paragraph 9 of IT-522R is an administrative concession aimed at employees leasing passenger vehicles related to their employment income. It describes a situation where an employee is able to deduct a greater amount of the normal monthly lease payments in a year because he or she has made a lump sum payment. This is permitted provided the total amount deducted over the term of the lease does not exceed the amount allowed under section 67.3 of the Income Tax Act (the "Act"). The restrictions under paragraphs 7307(1)(b) and 7307(3)(b) of the Income Tax Regulations apply, that is the vehicle is limited to a cost of $30,000 plus applicable federal and provincial taxes and the monthly lease is restricted to $800 plus applicable taxes. However, the portion of the actual lease charges paid in a year in respect of a passenger vehicle that cannot be deducted in the year pursuant to section 67.3 of the Act cannot be deducted in a subsequent year.
Recent letters from the Canada Revenue Agency (the "CRA") 2003-0015675 and 2001-011346 require that a lump sum payment be amortized over the term of the lease in accordance with subsection 18(9) of the Act. We concede that the letter 2003-0015675 did not consider the administrative concession in paragraph 9 of IT-522R and in our letter 2001-011346, Mr. A is a self-employed individual and the administrative concession would not apply to him.
The foregoing comments represent our general views with respect to the subject matter. As indicated in paragraph 22 of Information Circular 70-6R5, the above comments do not constitute an income tax ruling and accordingly are not binding on the CRA.
We trust the following comments are of assistance.
Yours truly,
Steve Tevlin
For Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Planning Branch
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