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.
Glossary
| TERM | DEFINITION |
|---|---|
| Add-Ons | Any features or services that are applied on top of the base price of a car are considered add-ons. These can include things such as tinted windows, heated seats, leather seats, alarms, and wheel locks, to name a few. |
| Base Price | The base price of a car is the cost of the vehicle without any upgrades or added features that can be added after the car is ordered from a dealership. Only standard equipment and the manufacturer’s warranty are included in the base price, but any other fees will be added afterward. |
| Certified Pre-Owned (CPO) | CPO cars refer to used cars that have been certified, either by the dealership selling the car or the manufacturer of the vehicle. This gives consumers confidence knowing they are buying a used vehicle that is in good condition. When a used car is obtained by a dealership, it is inspected by a certified mechanic. The car is then repaired if it meets the required standards and is then ready to be sold as a CPO vehicle. |
| Clear Title | A clear title means that the owner of the car has a free and clear title and no longer carries a balance owing on a car loan. There are no liens of the title or levies from creditors. |
| Dealership | Auto dealerships are businesses that are authorized to sell new or used automobiles to consumers and serve as a direct dealer for automakers |
| Dealership Financing | Consumers can obtain dealer financing to help fund the purchase of a vehicle. A contract is signed with a dealership that requires a consumer to pay for a specific amount plus interest and funding fees over a certain period of time. Dealers will send the details of the consumer’s financials to various lenders to find one that will approve the loan. |
| Depreciation | Depreciation refers to the decline in the value of a vehicle. Immediately after purchase, a vehicle will become less valuable as soon as it is used. Put another way, depreciation is the rate at which an automobile loses its value over time |
| TERM | DEFINITION |
|---|---|
| Extended Warranty | Vehicles come with a manufacturer’s warranty when purchased, but buyers can choose to purchase an extended warranty. This serves as a form of insurance policy on the vehicle to cover the cost of potential repairs in the future. An extended warranty is usually good for a certain period of time and/or mileage. |
| TERM | DEFINITION |
|---|---|
| Lease | A contract that allows an individual the right to use or occupy a property for a specified period of time in exchange for a monthly payment. Leases are common for a property like apartments and vehicles. The individual on the lease does not own the asset at the end of the lease’s term, it is strictly for rental purposes. |
| TERM | DEFINITION |
|---|---|
| MSRP (Manufacturer’s Suggested Retail Price) | Car manufacturers will offer recommendations on how much a car should be priced at the retail level, known as the manufacturer’s suggested retail price, or MSRP. The purpose of the MSRP is to standardize pricing in the automobile industry so that there is not a lot of fluctuation in price from one dealership to another. |
| TERM | DEFINITION |
|---|---|
| Title Loan | A title loan uses the vehicle title as a form of collateral to secure a loan. Borrowers must own their vehicles free and clear and no longer owe any amount on a car loan. A lender will place a lien on the car title in exchange for funds. If the borrower defaults on the loan, the lender can take possession of the vehicle and sell it to cover any losses. |
| Trade-in Allowance | A trade-in allowance is the amount that a car dealer will reduce the cost of a new car purchase by after the consumer’s old vehicle has been traded in. It is somewhat like being given credit from the sale of an existing vehicle that is then applied to the purchase of a new vehicle. |
| Trade-in Value | A trade-in value is the amount that dealerships offer consumers for their vehicle and is typically applied toward the purchase price of another vehicle. Dealerships will assess the value of the vehicle and will base the amount that can be applied to a new car purchase. The consumer will then trade in the old vehicle and the assessed value amount will be deducted from the price of another vehicle. Trade-in value is often different than what the vehicle may be worth when sold in the open market. |
| TERM | DEFINITION |
|---|---|
| Vehicle Identification Number (VIN) | Every vehicle will have its own unique vehicle identification number, which is used to identify a specific vehicle. No two vehicles will have the same VIN, making them easily identifiable with this unique 17-character code. |
