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. More specifically, the Capital Cost Allowance (CCA) is a claim you can make on your taxes for the purchase of your vehicle.
Let’s go into more detail about the CCA and how you can use it to your advantage to keep more money in your pocket come tax time.
Key Points
- Capital Cost Allowance allows businesses to claim the cost of depreciable property, including vehicles, that are used for business purposes.
- To claim CCA on your business vehicle, the capital cost of the car must be limited to $30,000 (excluding GST/HST) under Class 10, and under $37,000 under Class 10.1.
- In the first year, you can only deduct half of the applicable CCA rate under the half-year rule.
- In subsequent years, the CCA is calculated on the remaining undepreciated capital cost.
What Is Capital Cost Allowance (CCA)?
Capital Cost Allowance (CCA) is a tax deduction that businesses in Canada 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, like instruments for musicians 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.
Are You Eligible For The 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.
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.
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.
Vehicle Classes Eligible Under CCA
Several vehicle classes are eligible under CCA, but Class 10 and Class 10.1 are most common for regular passenger vehicles.
Class 10
Class 10 vehicles generally include vehicles with a capital cost of no more than $30,000 or less (not including GST/HST). If the cost of the vehicle is over this threshold, the excess amount may be considered under Class 10.1.
Class 10.1
Class 10.1 vehicles include those with a capital cost of more than $30,000. This can include luxury cars or vehicles with a higher value.
Class 10.1 capital cost limits for passenger vehicles are as follows:
- $30,000 for vehicles purchased before 2022
- $34,000 for vehicles purchased in 2022
- $36,000 for vehicles purchased in 2023
- $37,000 for vehicles purchased after December 31, 2023
How Much Capital Cost Allowance Can You Claim?
The amount of capital cost allowance you can claim depends on two factors:
- Vehicle type
- The date you bought the vehicle
Rate caps are as follows:
- Class 10 Vehicles: The highest CCA rate you can claim for a Class 10 vehicle is 30%.
- Class 10.1 Vehicles: The highest CCA rate you can claim for a Class 10.1 vehicle is 30%.
How Do You Calculate Your Capital Cost Allowance?
To calculate your CCA, you must use the back CRA form T777, Statement of Employment Expenses. This form is divided into two parts:
- Part A: Use this part to calculate CCA for Class 10 vehicles.
- Part B: Use this part to calculate CCA for Class 10.1 vehicles.
To calculate CCA on your vehicle, follow these steps:
Step 1: Determine The Capital Cost
The capital cost is the amount you paid for your vehicle, including taxes and other expenses incurred to acquire the vehicle.
Step 2: Apply The Appropriate CCA Rate
As mentioned, the CCA rate for both Class 10 and Class 10.1 vehicles is 30% per year.
Step 3: Determine The Deduction
You can only claim CCA on 50% of your vehicle purchases in the first year, which is known as the 50% rule. That means only half of the CCA rate is applied in the first year. In the case of Class 10 and Class 10.1 vehicles, half of the CCA rate would be 15%.
In subsequent years, the full 30% rate can be applied. Keep in mind that the deduction is calculated on the remaining balance every year, and not the original price of the vehicle.
Step 4: Deduct The Amount
Once you calculate the depreciation amount for the year, subtract this amount from the remaining value of the vehicle — also known as the undepreciated capital cost (UCC) — after you’ve applied the depreciation. The CCA is calculated on the remaining UCC for subsequent years.
| Example: Let’s illustrate how to calculate your Capital Cost Allowance using an example: Vehicle purchase price: $25,000 Capital cost for CCA: $25,000 Class: Class 10 (since the vehicle is less than $30,000) CCA rate: 30% Because of the half-year rule, the CCA deduction in the first year would be as follows: $25,000 × 15% = $3,750 The next year, the CCA is applied to the remaining balance: $25,000 – $3,750 = $21,250$21,250 × 30% = $6,375 Continue this process until the entire capital cost is depreciated. |
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, are identical for sole proprietors, partnerships, and corporations.
Factors To Consider When Claiming CCA On Your Vehicle
When claiming CCA on your vehicle, keep the following considerations in mind:
Ensure Eligibility
Only business use of the vehicle can be claimed for CCA. If the vehicle is used for both personal and business purposes, you’ll need to calculate the business-use percentage. For example, if you use the vehicle for business 70% of the time, then you can claim no more than 70% of the CCA.
Understand Limits And Restrictions
The CRA sets limits for certain vehicle types, so make sure you understand the limits on the amount you can claim.
Maintain Accurate Records
It’s important to keep detailed records of the vehicle’s purchase, use, and related expenses. Documents to keep may include receipts for repairs, maintenance, and gas.
Consult A Tax Specialist
Dealing with CCA claims can be a bit daunting. To ensure accurate claims, consider speaking with a tax specialist.
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 an accountant if you need additional support with claiming CCA.
