Are you a business owner or employee that relies on a vehicle to carry out your operations? If so, you may have considered purchasing a vehicle and writing off the purchase expense in your taxes. You might even be able to write off other related expenses, like gas, insurance, or toll fees on the highway. Capital Cost Allowance (CCA) is a claim you can make on your taxes for the purchase of your vehicle.
What is Capital Cost Allowance (CCA)?
Capital Cost Allowance (CCA) is a tax deduction that Canadian businesses can claim for the cost of “depreciable property” that is used to carry out business operations. Capital cost refers to the amount of money you paid for the property and includes items like delivery charges and sales tax.
Depreciable property for a business can mean many things – instruments for musicians for example, or pickup trucks for instrument distributors. The amount of capital cost allowance that you can claim for your car, however, depends on the type of vehicle you have. The CCA allows business owners to recover lost funds resulting from the depreciation of property used for their business, or in this case, depreciation of your business vehicle.
Do you have an electric or hybrid vehicle? Then you may be eligible for a tax rebate.
Are you Eligible For Capital Cost Allowance on Your Vehicle?
Before hastily deciding to purchase a vehicle in the hopes of writing off the expense, let’s take a look at some of the eligibility criteria for doing so.
Commission Income Employees
Commission Income employees must meet all of the following conditions to claim CCA:
- You, not your employer, paid for the vehicle and accompanying expenses out of pocket, and your contract of employment notes this as a requirement.
- You were required to work at locations other than your employer’s place of business
- You were paid by commission, not salary.
- You weren’t given a non-taxable travelling allowance.
- You have a copy of Form T2200, Declaration of Conditions of Employment, signed by your employer.
Check the employment conditions webpage more details on claiming CCA as a commission employee.
Salaried Employees
Salaried employees must meet all of the same conditions noted for commission employees above, except for the condition of being paid by commission.
Check the Allowable motor vehicle expenses page for more detail on conditions for salaried employees.
Sole proprietors, members of partnerships, and corporations are also eligible to claim CCA on a business vehicle.
Once you’ve determined your eligibility based on your employment scenario, you can decide with more confidence the type of car you want. Most vehicles are categorized under Class 10 (priced at $30,000 or less) which makes them eligible claims for CCA. Vehicles under Class 10.1 are considered luxury vehicles, and are priced higher than $30,000.
How Much Capital Cost Allowance Can You Claim?
The type of vehicle you have and the time of year in which you bought it are both factors in determining how much capital cost allowance you can claim.
Vehicles classed as “Motor Vehicles” use CCA Class 10, as do “Passenger Vehicles” that cost no more than $30,000, not including taxes. Passenger vehicles that cost more than $30,000 are considered luxury vehicles and use CCA Class 10.1.
Motor vehicles include pick-up trucks, trucks, or vans used to transport goods or passengers, usually having a minimum use of >50% business use, sometimes even 90%. Passenger vehicles include coups, pick-ups and sedans, and others that are not classified as motor vehicles.
Furthermore, the CCA limit is $30,000 for passenger vehicles. If the passenger vehicle purchase price was greater than $30,000, you can only claim a maximum of $30,000 plus sales tax on that $30,000.
If you bought your vehicle in June, you can only claim a half-year. So, if you planned to claim $30,000, you would need to divide that by 50% ($15,000).
How Do You Calculate Your Capital Cost Allowance?
To calculate your CCA, you must use the back CRA form T777, Statement of Employment Expenses. Skip column 2 if this is your first year claiming CCA, but start with column 2 if you have claimed CCA before.
The following links help you calculate your CCA based on the class of vehicle that you have:
Once you’ve calculated your CCA, you can move on to making your claim.
How Do You Claim Your Capital Cost Allowance?
Sole proprietors and members of partnerships are able to claim CCA on line 9936 of Form T2125, Statement of Business or Professional Activities. Corporations can also claim CCA in their T2 Corporate income tax return. Note that the calculation for CCA, and the rules around it, is identical for sole proprietors, partnerships, and corporations.
Final Thoughts
Claiming CCA can help you find savings in operating your business operations. However, there are other resources available to you to ensure you are filing your taxes correctly. Consider the services of tax software or accountant if you need additional support with claiming CCA.
