Business vehicles in Canada can be written off at tax time using Form T2125, Statement of Business or Professional Activities. This expense can be claimed by calculating the Capital Cost Allowance (CCA) on your Canadian income tax return.
The CCA allows owners to recover money lost due to depreciation of business assets. Business vehicles apply to this rule and can be written off over a period of several years.
How to Claim CCA on Form T2125
If you are a sole proprietor or a member of a partnership, you can claim the CCA on line 9936 of Form T2125. Canadian corporations can also claim the CCA on vehicles they've purchased for business use in the appropriate section of the T2 corporate income tax return. The CAA calculation is the same for corporations, sole proprietors and partners, and the same CCA classes and rules apply. This calculation should be entered in Area A of the form.
Preparing to Calculate the CCA for Your Business Vehicle
To calculate the CAA for your business vehicle, you will first need to determine if your vehicle is classified as a motor vehicle or passenger vehicle. Also, the type of vehicle you own or lease affects the amount you can deduct for CCA and other expenses.
Generally, Canadian law states that a passenger vehicle is “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."
CCA Vehicle Classification
Vehicles classed as "Motor Vehicles" use CCA Class 10, as do "Passenger Vehicles" that cost $30,000 or less, not including taxes. Passenger vehicles costing more than $30,000 are considered luxury vehicles and use CCA Class 10.1.
CCA vehicle classification information is presented as follows:
|Rules and Definitions||Class 10||Class 10.1|
|Maximum CCA claimable||No Limit||$30,000 + GST/HST/PST|
|Maximum CCA rate||30%||30%|
|Half-year rule on purchase||Yes||Yes|
|Half-year rule on sale||No||Yes|
|Motor vehicle, includes:|
|pick-up used to transport goods, equipment, > 50% business use||✓|
|pick-up with extended cab used to transport goods, equipment, or passengers, > 90% business use, 4-9 seats||✓|
|van used to transport goods, equipment, > 50% business use, 1-3 seats||✓|
|van used to transport goods, equipment, or passengers, > 90% business use, 4-9 seats||✓|
|Passenger vehicle maximum $30,000, includes:|
|coupe, sedan, crossover, sport-utility||✓|
|pick-up or van other than above||✓|
|Passenger vehicle > $30,000, includes:|
|any vehicle not classed as a motor vehicle||✓|
The Canada Revenue Agency provides a chart of vehicle definitions for vehicles bought or leased after June 17, 1987, and used to earn business income.
Note that goods and services tax (GST) and provincial sales tax (PST), or harmonized sales tax (HST) should not be included when calculating the cost of a vehicle to determine its class, and are only applicable up to $30,000. For example, the CCA limit is $30,000 for a passenger vehicle. If the price of the vehicle exceeds $30,000, you can only claim $30,000 plus the GST and PST—or HST—on $30,000.
Also, if you bought a new van for $42,000 to use in your business, this vehicle would apply to CCA Class 10.1. However, you would only be able to claim a capital cost of $30,000 plus the applicable GST and PST or HST on $30,000.
If you bought the van in British Columbia, for instance, where the PST rate is 7%, you would then add:
- 5% GST on $30,000 = $1,500
- 7% PST on $30,000 = $2,100
Your total capital cost would be $33,600, which would be entered in column 3 of Area B on Form T2125.
Note that if you purchased your vehicle in the middle of the year, you can only claim a half-year, that is, 50% of the CAA. Therefore, instead of claiming $33,600 for the van, you would claim $16,800.
If you prepare your own taxes, use a highly rated tax software program to facilitate this process. Tax software can automatically carry over any previous year's CCA data and fill in the values for the current year.
Also, try to time your new vehicle purchase for the end of your business’s fiscal year. That way, you can claim the 50% CCA for that entire tax year, even though you didn’t have the vehicle until near the end, and then get a full 100% CCA cost on the vehicle the next year.