Are Farm Equipment Lease Payments Tax Deductible?

12 Mar 2020 Financing

Understanding whether or not farm equipment lease payments are tax deductible will help ensure that you are getting the most out of your lease agreement. At Valiant Financial, they understand how important your business’ capital is to you. That is why their team will partner with you to not only create the ideal farm equipment lease but also to ensure that you are receiving all possible tax benefits.

How are Farm Equipment Leases Treated for Tax Purposes?

In most cases, farm equipment lease payments are fully deductible for tax purposes. This differs from purchasing farm equipment where the tax-deductible portion becomes the capital cost allowance plus interest, if the purchase was financed. In the year of purchasing the equipment, the capital cost of allowance would also be limited to 50 per cent of the normal rate.

When it comes to pre-paying lease payments, expenses paid in the current year can be deducted from your taxes as long as they are not connected to a previous taxation year from two or more years following the payment year. This can be extremely beneficial for farmers who want to trade in a piece of equipment for new equipment that has been leased.

How are Capital Lease Assets Treated Under Accounting Rules?

Capital lease assets will appear on all financial statements along with any associated debt (also known as a capital lease obligation). The financial statements will show that the assets are amortized and that any interest is expensed, as well as any other assets that have been purchased. When you are preparing your tax return, the expense will appear on the actual lease payments made throughout the year; however, the amortization and interest will not be deductible.

Are There GST Tax Credits for Farm Equipment Leases?

While agricultural equipment is not usually subject to GST, lease payments are. Unlike purchasing farm equipment where the GST is usually recovered at the time of the purchase, you will have to file for an input tax credit to regain any GST paid on a leased asset.

If you would like to learn more about whether or not farm equipment lease payments are tax deductible, or if you are interested in one of their agricultural equipment leasing options, please contact Valiant Financial at 1-833-635-3273. Their team would love to partner with you on all of your farm equipment leasing needs and to help you receive any applicable tax deductions.