How to Claim Vehicle CCA Costs (Depreciation)Brian Jang ON December 14, 2018
Being able to claim certain goods and services as business expenses is a great option for business owners. Perhaps you have recently purchased a vehicle, or are simply contemplating doing so, and you would like to know how to write it off as a business expense.
Unfortunately, you cannot.
The purchase of a new or used vehicle can’t be written off directly, but don’t be discouraged; this article will discuss how to claim vehicle CCA costs.
First, as mentioned, you cannot write it off directly, however, as property that deteriorates over time, you will need to write it off over the course of several years through Capital Cost Allowance (CCA).
As a sole proprietor, or as a member of a partnership, you will use line 9936 of your Statement of Business or Professional Activities (form T2125). Canadian corporations are also able to claim CCA on vehicles purchased for use in business, by filling in the necessary section of theT2 corporate income tax return form. Calculations will be the same as for sole proprietors and partners, with the same CCA classes and rules applying.
Form T2125 has a box at the top of page 4: Calculation of Capital Cost Allowance (CCA).
Things to Know Before Calculating Your CCA Costs
- Vehicles can be classified as either motor vehicles, or passenger vehicles, and the type that you own, or lease will affect the amount eligible to deduct for your CCA and other expenses.
- A passenger vehicle is defined as ““a motor vehicle designed or adapted primarily to carry people on highways and streets. It seats a driver and no more than eight passengers. Most cars, station wagons, vans, and some pick-up trucks are passenger vehicles.”
- A vehicle that has been classified as a “Motor Vehicle,” and Passenger Vehicles that cost $30,000 or less both use CCA Class 10, whereas passenger vehicles that cost more than $30,000 are classified as luxury vehicles and use Class 10.1.
- Rules applicable to Class 10 include: no limit to maximum claimable on CCA, and Half Year rule on purchase.
- Class 10 on Motor Vehicles includes: 1) Vans with 1-3 seats, or pick-ups that are used for the transport of goods and equipment, with greater than 50% business use. 2) Vans with 4- 9 seats, or pick-ups with extended cabs used to transport goods, equipment, or passengers, with 4-9 seats and greater than 90% business usage.
- Class 10 Passenger Vehicles under $30,000 includes: coupes, sedans, x-overs, or sport utility vehicles. It also includes vans or pick-ups not defined above.
- Class 10 Passenger vehicles over $30,000 include and vehicles not classified as a motor vehicle (as described above).
What is the Half-Year Rule?
The half year rule states that you can only claim a half-year of CCA in the year that you purchased the vehicle. Therefore, it is wise to make your new vehicle purchase at the end of the year if possible. This will allow you to claim 50% of CCA cost for the entire tax year, even though you only received the vehicle near then end of the year. In the following year, you would receive the full 100% CCA cost.
If you still have some uncertainty about the CCA, know that some tax software can automatically carry over the previous year’s CCA data and fill in the values for the current year.
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- Everything You Need to Know About the Tax-Free Savings Account
- What to Watch Out for When Filling Out Your Return
- How to Claim Your Vehicle Capital Car Allowance Costs