How to Claim Input Tax CreditsRelating toBusiness Use of Your Personal VehicleLet's chat about input tax credits (ITCs) and business use of your personal vehicle. Warm up your teacup because here we go ...
 Custom Search I am reading Stephen Thompson's book "167 Tax Tips for Canadian Small Business 2009". In the book, he has a section on claiming ITCs on personal vehicles. It's complicated so I thought I'd cover the topic. I hope it helps you out. For me, I'm hoping to have a refresher on how to book the ITCs. This is not my strongest area ... so please check with a professional before you act on any information presented here. Before I book these types of entries, I check in with my fellow CBA colleagues. If you are a professional bookkeeper or accountant reading this, and I am not understanding this correctly, I would truly appreciate it if you took the time to educate me by sending me a note. If you are wondering what an ITC is, I explain it in this GST article. Reminder Before I begin I would like to remind you there is a difference between information and advice. The information provided in this article or on this site should not be construed as advice. Please make yourself familiar with my disclaimer. Capital Cost Allowance on Your Personal Vehicle Booking of your input tax credits for your personal vehicle is closely tied to your capital cost allowance (CCA) claimed on your income tax return ... so we need to take a minute and review how CCA for your vehicle is classified.
The sentence in the above paragraph tells me that I may not be able to claim my ITCs for my vehicle all in one year. The ITCs might have to be claimed on your GST returns over a number of years. How did I figure that out from that sentence? Well, if you remember when we were talking about transactions to watch out for, I mentioned that CCA is tax speak for depreciation. When you hear that term, your ears should perk up ... because it may mean the transaction cannot be expensed but needs to be capitalized and depreciated slowly over the life of the asset ... ... so that tells me that if the booking of ITCs is tied to CCA, it may have to be done over a number of years. There are exceptions. If your vehicle cost less than $30,000 (before taxes) and was purchased after December 31, 2000, it will be classified for tax purposes as a class 10 asset which has a 30% CCA rate. There is a tax rule that says you can only deduct 50% of the CCA rate in the first year. (This applies to all classes of CCA.) So for our purposes, your vehicle will have a CCA rate of 15% for the first year. Rules for Class 10 Assets
If your vehicle is classified as a luxury vehicle by the government (a passenger vehicle that cost over $30,000), you are restricted to claiming $30,000 before taxes. It will be classified for tax purposes as a class 10.1 asset which has a 30% CCA rate. Special Rules for Class 10.1 Assets
Before I leave this topic I just want to mention that I found learning tax very hard ... the rules are often not logical to me. My father was a chartered accountant and he used to say to me ... don't try to understand the logic just learn the rules. So if some of this stuff doesn't make sense to you ... welcome to tax! Take my dad's advice and just learn the rules for now. General Rules If you use your personal vehicle for business use and your auto log shows your use is 90% or more for business purposes, then you can claim 100% of your ITCs paid on your GST return ... up to a maximum of $1,500 (5% of $30,000) if your vehicle is classified as a passenger vehicle. Updated January 2011 - As the $1,500 represents $30,000 x 5% GST, your maximum limit will be your GST or HST rate depending on the province you live in. You are not eligible for any input tax credit relating to your personal vehicle if your auto log shows your business use to be 10% or less. If your auto log shows business use is between 10% and 90%, you can claim 5/105ths of the capital cost allowance of the personal vehicle (CCA) claimed in the year. The amount you claim as an input tax credit must then reduce the CCA pool in the next year. For example: IF your personal vehicle cost $27,000 after taxes and you use it 40% for business, you would have claimed $1,620 ($27,000 x 15% CCA rate for first year x 40%) CCA on your tax return. THEN you are allowed to claim $77 ($1,620 x 5/105ths) for your ITCs on your GST return. NEXT YEAR you adjust your undepreciated capital cost (UCC) by the $77 of ITCs claimed. Updated January 2011 - If you live in an HST province, your calculation will be dependant on your province's HST rate. For example: 13/113 or 12/112 or 15/115. Reference: CRA publication RC4022 General Information for GST/HST Registrants > Claiming ITC for capital property > Sale of capital personal property - see the excellent chart for the rules on claiming ITCs. General Rules If you use your personal vehicle more than 50% for business use, then you can claim the full input tax credit on your GST return, to a maximum of $1,500 if your vehicle is classified as a passenger vehicle. Updated January 2011 - The $1,500 represents $30,000 x 5% GST. Your maximum limit will be your GST or HST rate depending on the province you live in. You are not eligible for any input tax credits relating to your personal vehicle if your auto log shows your business use to be 50% or less.
You have two choices. One - An allowance based on business kilometers driven You are reimbursed by business kilometers travelled each time you submit an expense report. The tax-exempt portion of the rate is set by CRA. Mr. Thompson recommends you have an employment contract stating the per kilometer allowance. Two - An allowance not based on business kilometers driven In this instance, the full allowance is then included in your income but you can deduct your actual operating costs.
Mr. Thompson explains that it is simpler to personally own your vehicle. The benefits of having the corporation own the vehicle have been reduced substantially over the years. Having the company own the vehicle means taxable benefits have to be T4d and standby charges calculated. Vehicle operating costs paid by the company are also considered a taxable benefit.
Try to become familiar with how input tax credits for your vehicle are calculated because business vehicle expenses are always reviewed by CRA. The rigid and complex rules make it easy pickings for audit purposes. I really need to refill my teacup! I always get a little tense when I have to book these transactions because I don't want to get it wrong ... and so it seems it's also true when I just discuss booking them!!! LOL
Go To Information on CCA for Businesses
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