The Income Tax Act broadly categorizes vehicles as either motor vehicles or passenger vehicles. The type of vehicle you purchase and its primary usage in your business has significant tax implications. There are restrictions on the capital cost and expenses that can be claimed in respect of passenger vehicles.
A motor vehicle is an automotive vehicle designed or adapted for use on highways and streets, not including a trolley bus or a vehicle designed or adapted to be operated only on rails. A passenger vehicle is a motor vehicle designed or adapted primarily to carry people on highways and streets which seats a driver and no more than eight passengers. The following vehicles are excluded from the definition of passenger vehicles:
a clearly marked police or fire emergency response vehicle
a motor vehicle you bought to use more than 50% as a taxi, a bus used in the business of transporting passengers, or a hearse used in a funeral business
a motor vehicle you bought to sell, rent, or lease in a motor vehicle sales, rental, or leasing business
a motor vehicle (except a hearse) you bought to use in a funeral business to transport passengers
a van, pick-up truck, or similar vehicle that seats no more than the driver and two passengers and that, in the tax year you bought or leased it, was used more than 50% to transport goods and equipment to earn income
a van, pick-up truck, or similar vehicle that, in the tax year you bought or leased it, was used 90% or more to transport goods, equipment, or passengers to earn income
a pick-up truck that, in the tax year you bought or leased it, was used more than 50% to transport goods, equipment, or passengers to earn or produce income at a remote work location or at a special work site that is at least 30 kilometers from the nearest community with a population of at least 40,000
a clearly marked emergency medical service vehicle used to carry paramedics and their emergency medical equipment
When you purchase a motor vehicle, the purchase price is capitalized to class 10 for capital cost allowance purposes and subject to amortization at a rate of 30%. Passenger vehicles with a cost more than $30,000 plus sales tax are individually capitalized to a separate class 10.1. Only $30,000 is capitalized to this class which means that you will not receive the benefit of a tax deduction for any amount paid above $30,000. Furthermore, the rules regarding recapture and terminal loss do not apply to class 10.1. In the year of disposition of a class 10.1 vehicle, you are entitled to CCA at a rate of 15% and no further deductions will be permitted, regardless of the remaining balance in the class.
Separate rules apply to zero-emission vehicles purchased after March 18, 2019 which become available for use before 2028. The capital cost restriction for these vehicles is $55,000 plus sales tax. The vehicles are subject to amortization at a rate of 30%, but certain vehicles may be eligible for a 100% deduction in the year of purchase.
The amount of interest that can be claimed in respect of a loan to purchase a passenger vehicle is also subject to limitations. The maximum monthly interest charges that can be claimed are limited to $300.
Leasing costs in respect of passenger vehicles are also subject to limitations. The maximum leasing costs that can be claimed is $800 per month, including the amortization of deposits plus GST/HST and PST. This amount is pro-rated if the purchase price of the manufacturer’s list price of the vehicle exceeds $30,000, similar to the capital cost restriction for a purchased vehicle.
There are many considerations when purchasing a new vehicle. Tax implications may not be the primary driver of your decision, but it is important to understand the restrictions before making a decision.
For more information, please contact firstname.lastname@example.org or 1 844-GYTD-CPA