How to Claim Vehicle CCA Costs (Depreciation)
How to Claim CCA (Capital Cost Allowance) on a Vehicle Bought for Business Use
Bought a new vehicle to use in your business or thinking of buying one and wondering how to claim the vehicle CCA costs on your income tax in Canada?
The cost of buying a new (or used) vehicle can’t be directly written off as a business expense.
Instead, because a vehicle is a property that deteriorates over time, you need to write off the cost of your vehicle purchase through Capital Cost Allowance (CCA) over a period of several years.
If you are a sole proprietor or a member of a partnership, you will claim this CCA on line 9936 of your form T2125, Statement of Business or Professional Activities (definition).
(Canadian corporations can claim CCA on vehicles they've purchased for business use as well, of course, in the appropriate section of the T2 corporate income tax return. The calculation of CCA works exactly the same way as for sole proprietors and partners and the same CCA classes and rules apply.)
When you look at form T2125, you’ll see an Area A – Calculation of capital cost allowance (CCA) claim box at the top of page 4.
How to Calculate Capital Cost Allowance provides a detailed column-by-column explanation.
What You Need to Know Before You Calculate Your CCA Costs
1) There are two different types of vehicle for income tax purposes, motor vehicles and passenger vehicles, and the type of vehicle you own or lease affects the amount you can deduct for Capital Cost Allowance and other expenses.
Generally, they advise, 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”.
2) 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 belong in Class 10.1:
|Rules and Definitions||Class 10||Class 10.1|
|Max. CCA Claimable||No Limit||$30,000 + GST/HST/PST|
|Max. 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 max $30,000, includes:|
|coupe, sedan, xover, sport-utility||✓|
|pick-up or van other than as defined above||✓|
|Passenger vehicle > $30,000, includes:|
|any vehicle not classed as a motor vehicle (as defined above)||✓|
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.
The CCA limit for a passenger vehicle cost is $30,000 so even 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 – no matter what the vehicle actually cost you.
So if you bought a new van for $42,000 to use in your business, this vehicle would be in Capital Cost Allowance Class 10.1, as it cost you more than $30,000 and 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 BC, 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
For a total capital cost of $33,600. This is the amount you would enter in column 3 of Area B on Form T2125.
*BC PST varies depending on the cost of the vehicle purchased; 7% in this case as the vehicle is less than $55,000. see Does Your Business Need to Register for BC PST? for more details.
3) Beware the half-year rule!
The half-year rule means that in the year that you purchased the vehicle, you can only claim a half-year of Capital Cost Allowance (50%).
In the case of the example, I just gave above of buying a van to use in your business, in the tax year that you bought it you would only be able to claim $16,800.
Tax Tip: If you can, time your new vehicle purchase for the end of your business’s fiscal year. That way you get to claim the 50% of CCA cost 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.
Tax Software Helps
Tax software can automatically carry over any previous year's CCA data and fill in the values for the current year. See Top Canadian Tax Software Programs for this and other advantages of using tax preparation software.
- Chapter 4 of the Canada Revenue Agency’s T4002 - Business and Professional Income Guide is all about Capital Cost Allowance.
- How to Calculate Capital Cost Allowance
On the topic of motor vehicle expenses, you’ll also want to read:
- Business Expenses Related to Using Your Vehicle for Business
- How to Keep a Logbook to Claim Motor Vehicle Expenses