Words and Phrases - "actual lease charge"

In 2023, a self-employed individual leased an automobile, which he used in the course of his business, but several months later, terminated the lease and paid a lease termination fee of $10,000, in order to lease a different make of car.

2008-0285361C6 dealt with a car lease early termination payment by an employee (claiming employment expenses therefor) and stated that if the termination fee represented actual lease charges under the automobile lease, it could be deducted pursuant to s. 8(1)(h.1) subject to the limitations in s. 67.3, i.e., the termination fee was to be added to the other lease costs that were subject to s. 67.3.

Does this analysis apply to a self-employed worker or a corporation using an automobile in the course of a business?

CRA indicated that in such circumstances, the limit set out in s. 67.3 also applied to determine the maximum amount that could be deducted as “actual lease charges” for a passenger vehicle in computing the taxpayer's business income under s. 9(1). CRA stated:

Generally speaking, “actual lease charges” include the monthly payments for the use of a passenger vehicle. They also include other expenses provided for in the leasing contract, such as mileage or other final charges paid or payable and relating to the use of the vehicle by the lessee.

After indicating that whether the early termination fee was an “actual lease charge” was a question of fact, CRA stated:

Where the $10,000 early termination fee for an automobile lease constitutes “actual lease charges”, it must be added to the usual lease charges (as per the base lease). If the taxpayer's total annual lease charges exceed the limit allowed under section 67.3, the taxpayer will not be able to deduct the excess charges.