Tax benefit for zero-emission vehicles (ZEVs)
In 2019, the CRA raised the maximum claimable CCA for ZEVs to $55,000 plus the federal and provincial sales tax paid on up to $55,000 of the car’s purchase price. ZEVs include battery-electric cars, plug-in hybrid electric cars (with a battery capacity of at least 7 kWh) and hydrogen fuel cell cars including light-, medium- and heavy-weight vehicles bought by a business.
What vehicle tax deductions can I write off?
Using your own car for work? Find out what expenses you can claim to lower your business's tax bill.
What types of vehicle expenses are tax deductible?
The CRA allows business owners to treat the following vehicle expenses as tax deductible:
- Licence and registration fees
- Fuel (gasoline, propane, oil)
- Maintenance and repairs
- Leasing costs related to your use of the vehicle for business purposes
- Capital cost allowance
- Interest you paid on a loan used to buy the motor vehicle. If you use a passenger vehicle or zero-emmission vehicle (as defined by the CRA), deduct the lesser of: (1) total annual interest paid or (2) $10.00 multiplied by the number of days you paid interest.
What types of vehicle expenses are NOT tax deductible?
The following types of expenses are not eligible to be claimed on your business tax return:
- Expenses related your use of the car for personal reasons (to run errands, pick up groceries, go shopping etc.)
- Commuting costs to and from work
- Fines for traffic tickets and expenses related to court orders
- Expenses related to using the car as part of your employment for another business or person
What if I use the same vehicle for business and personal reasons?
If you use the same vehicle for both business and personal reasons, you’re only allowed to deduct eligible expenses related to your business use of the vehicle. This means any costs incurred while using the vehicle to earn income. For example, if business activity accounts for 60% of your vehicle use in a given year, then you can claim 60% of your lease payments as part of your business vehicle expenses.
That’s why it’s so important to keep all business-related receipts handy, track your mileage and make note of your reasons for driving. You’ll need this information to figure out what proportion of expenses you can deduct come tax time.
Who can deduct vehicle expenses?
If you’re a business owner or are self-employed and use a car for business purposes, you can deduct certain vehicle operational costs from your taxes. But you can’t claim these expenses if you’re employed by another company or work for someone else. In that case, your vehicle expenses are considered unreimbursable or nondeductible.
How do I calculate my business vehicle tax deductions?
If you own or lease a business vehicle, the CRA will allow you to lower your taxes by claiming 2 types of expenses: vehicle depreciation and the cost of using and maintaining your vehicle. Vehicle depreciation is the decrease in your vehicle’s value over time and is claimed on your business taxes as “capital cost allowance” or CCA.
Other costs associated with using and maintaining your vehicle – such as gas, repairs, mileage, insurance, car loan interest fees and licensing/registration fees – can be claimed as “motor vehicle expenses.”
You can’t claim these amounts fully. Only a certain portion of your vehicle’s depreciation and expenses are claimable, except for parking fees and supplementary car insurance, which can be 100% claimed as motor vehicle expenses.
The CRA has very specific rules for calculating the amount of your claims. These are explained below:
How to calculating Capital Cost Allowance (CCA)
Step 1. Find the class your vehicle falls into so you can determine the percentage of its value that can be claimed.
The CRA has created a list of roughly 20 classes into which various types of property fall for the purpose of calculating CCA. Each class has a percentage assigned to it, which indicates the proportion of a property’s value that you can claim on your business taxes.
Vehicles that cost $30,000 or less (before taxes) belong to Class 10, and vehicles that cost more than $30,000 (before taxes) belong to Class 10.1. Currently, you can claim up to 30% of the value of property in Classes 10 and 10.1. (This percentage could change in the future, so be sure to check the CRA’s website for the most current rules.)
Step 2. Calculate the capital cost of your vehicle.
Add the base cost of your vehicle (its purchase price) to the GST/HST you paid. This is the capital cost of your vehicle. No more than $30,000 of the base cost of a vehicle can be applied towards the calculation of its capital cost. This means that, if your vehicle costs $31,000, $40,000 or even $100,000, you can still only count $30,000 towards its capital cost. (See Step 2 of “Calculating motor vehicle expenses” to find out how to deduct lease payments from your business taxes.)
Step 3. Multiple the capital cost of your vehicle by the percentage you can claim (note the “half year rule”).
Different rules apply for calculating CCA based on whether you bought the vehicle the same year for which you’re filing a tax return or whether you’ve owned it for longer. If you bought a vehicle and made a CCA claim on it that same year, then the “half-year rule” would require that you calculate CCA based on half the capital cost of the vehicle instead of the full amount.
In subsequent years, CCA would be calculated based on the full capital cost of the vehicle minus any previously-claimed CCA amounts.
How to calculate motor vehicle expenses
Step 1. Calculate your mileage.
Keep a record of the total number of kilometres you drove that year and how many of those kilometres were driven for business-related reasons. Divide the number driven for business reasons by the number driven overall. The result should be equal to, or less than, 1 and will represent your mileage when calculating your claimable motor vehicle expenses.
Step 2. Add up your other vehicle expenses (including any applicable lease payments).
Add up all of your vehicle-related expenses, but leave out any expenses related to your personal use of the vehicle. If you’re leasing a vehicle, then the proportion of lease payments you can claim must match the proportion of your yearly vehicle use that was for business.
Step 3. Calculate your total tax deduction (plus parking fees & the cost of supplementary business insurance).
Multiply the mileage you calculated in step 1 with the total amount of your other vehicle expenses. Add in the full cost of any parking fees and supplementary business insurance you paid for that year. The resulting amount is the total you can claim for business-related motor vehicle expenses for that tax year.
Remember all costs used to calculate your motor vehicle expenses deduction must be directly connected to earning income. Note that parking tickets and other such penalties cannot be used in this calculation – unsurprisingly, you can’t claim fines earned by breaking the law.
Hire a professional!
Tax laws can be tricky, and there’s often a fine line between what’s considered personal and business use. A Certified Professional Accountant (CPA) can help maximize your deductions and avoid getting into trouble with the CRA.
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