Vehicle ITC and CCA

by Sherrill

Using your example from How to Claim Input Tax Credits Relating to Business Use of Your Personal Vehicle:


"IF your personal vehicle costs $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."



My Scenario: I’ve been writing off the full amount of CCA in the books every year. This keeps the two balances equal and uncomplicated just like this person does in How to Amortize Assets / Reconcile Statements When CCA Cannot be Claimed Due to Net Loss.

With the above example, the bookkeeping entry I typically make is (the amounts below being the total of the business & personal portion) $27,000 x 15% (1/2 of the usual 30% because its the vehicles 1st year). Yes the 40% business use is calculated on the income tax form but not here.

DR acct 5000 Amortization Expense $4,050.
CR acct 1800 Accum Amort – Vehicle $4,050.

I also input the GST adjustment with this entry:

DR acct 2222 GST adjustment (refundable) $77.
CR acct 3010 Owners Equity $77.


MY QUESTION: What happens next year after I adjust the undepreciated UCC by the $77 on the income tax CCA chart. I understand what happens on the income tax return but how do I keep my accumulated amortization on the vehicle to match the income tax CCA chart (like I was previously doing). Is there a bookkeeping entry I could do?

(I previously did not have this problem as the mileage was always over 90% so I wrote off the ITC in one shot. This year with a new vehicle the mileage is less than 90% so I have to now input this scenario every year.)



image of fancy scroll lines



Hi Sherrill,

I'm a bit confused. Two things.

1. Ignoring that the amortization method discussed on the CCA page is not GAAP as discussed in the posting (just so other visitors are aware of this), how are you going to "match" book amortization and CCA if you are recording book at 100% and CCA at 40%?

2. Why would you credit Owner's Equity for the ITC of $77? Wouldn't you credit Accumulated Amortization as NBV is the book equivalent (so to speak) of UCC for tax purposes?





P.S. I would like to remind you there is a difference between information and advice. The general information provided in this post or on my site should not be construed as advice. You should not act or rely on this information without engaging professional advice specific to your situation prior to using this site content for any reason whatsoever.

Comments for Vehicle ITC and CCA

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Dec 31, 2010
Answers to your questions
by: Sherrill

Q1=How are you going to "match" book amortization and CCA if you are recording book at 100% and CCA at 40%?

Response-I match the UCC (last column)on the CCA chart which in the example would be $12,950 to the NET of the vehicle on my chart of accounts. (which is Original Vehicle Cost $17,000 - Accumulated Amort on the vehicle (including both personal & business) $4,050 = NET $12,950).

But what happens when I take the UCC (last column) next year and input it into column 2 I now have to reduce that $12,950 by $77. Now the UCC won't balance to what I have in my chart of accounts.

Q2. Why would you credit Owner's Equity for the ITC of $77? Wouldn't you credit Accumulated Amortization as NBV is the book equivalent (so to speak) of UCC for tax purposes?

Response-I was rebating the owner the GST the way I do the home in office expenses. Seems I mucked up this entry and glad you caught it.

Jan 03, 2011
Sole Proprietor
by: Bookkeeping Essentials

Sherrill,

Okay, this is how I understand it.

As your employer is a sole proprietor not a corporation, your CCA and Amortization Expense amounts will be different because of the personal vs. business use proration.

The ITC will be booked to Accumulated Amortization. At year-end it will look like the two ending values (NBV vs UCC End) are different ... by the amount of the ITC claimed.

However, next year you will adjust the Opening UCC Balance by the amount claimed, bringing them back into "balance".

Does that make sense?


Jan 03, 2011
Thanks
by: Sherrill

Yes your reasoning does make sense and absolutely helps me understand what had me so confused. You're the greatest.

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