If you drive a lot for work, you may be wondering how you can make sure to claim the best tax refund at the end of the year. This article will cover what you need to know about the vehicle depreciation deduction, also known as Capital Cost Allowance.
What is the vehicle depreciation deduction?
Although you cannot claim the cost of a vehicle you purchased for work-related purposes, you can claim a percentage of your vehicle's cost. This deduction is known as a depreciation deduction, or for tax purposes, capital cost allowance (CCA).
Who is eligible to claim capital cost allowances?
You can claim the capital cost allowance on the cost of your vehicle if you are a salaried employee or an employee who earns a commission-based income. If you earn a commission-based income, you must also meet the following conditions to claim CCA:
- You paid for your own expenses under your employment contract. Please note that if your employer reimburses you for your expenses, or if you refuse such a reimbursement, you may not claim this deduction.
- You were required to work away from your employer's place of business on a regular basis.
- Payment received, either fully or partially, in commissions or similar amounts. These amounts must reflect either sales volumes or contracts negotiated.
- You did not earn a non-taxable allowance to cover your travel expenses. Most allowances are non-taxable, as long as they are for reasonable amounts. For example, mileage based on a reasonable per-kilometre rate.
- Possess a copy of the T2200 Declaration of Conditions of Employment form that has been signed and completed by your employer.
When can salaried employees deduct capital cost allowances?
If you are a salaried employee, you can deduct motor vehicle expenses, including CCA, as long as you meet the following conditions:
- You were required to work in a location other than your employer's place of business or in a variety of locations on a regular basis
- You had to pay for your own motor vehicle expenses, and this is stated in your contract of employment. If your employer reimburses you or offers to reimburse you for such expenses and you refuse, you may not claim the capital cost allowance
- Your employer did not pay you or offer to pay you a non-taxable allowance for motor vehicle expenses
- You keep a record of Form T2200, which has been filled out and signed by your employer.
What are the maximum deductions?
The maximum CCA rate you can deduct for motor vehicles is 30 percent. In order to claim the capital cost allowance to compensate for your vehicle's depreciation, you will need to fill out Form T777 Statement of Employment Expenses. In this form, you'll notice that there are two parts. Part A is for Class 10 motor vehicles, and Part B is for Class 10.1 motor vehicles. A motor vehicle will belong to Class 10.1. if it meets any of the following conditions:
- The vehicle was acquired after August 31, 1989, and before January 1, 1997, and it cost more than $24,000.
- The vehicle was acquired after December 31, 1996, and before January 1, 1998, and it cost more than $25,000.
- Vehicle was acquired after December 31, 1997, and before January 1, 2000, and it cost more than $26,000.
- The vehicle was acquired after December 31, 1999, and before January 1, 2001, and it cost more than $27,000.
- Vehicle was acquired after December 31, 2000, and it cost more than $30,000.
To figure out which class your motor vehicle belongs to, use the price you paid before GST/HST/QST. When the time comes to fill out the form, you will input the price after taxes, but for the purposes of figuring out which class your vehicle belongs to, you must use the price you paid before taxes.
How to claim capital cost allowance
Part A - Classes 8 & 10
If you are claiming capital cost allowance for the first time, you can skip column 2 of Form T777 and begin with column 3. If you've claimed CCA before, start with column 2 and proceed accordingly. Column 2 is dedicated to the undepreciated capital cost of your vehicle at the beginning from column 10. Column 3 is where you enter the cost of a newly acquired vehicle. If you acquired a motor vehicle in 2017, start by entering the total cost of your acquisition here. If you already owned the vehicle but started using it for work in 2017, you are declaring a change in use. In this case, you will need to enter the fair market value of your vehicle in column 3. According to the CRA, fair market value is "the highest dollar value that you can get for your property in an open market from an informed and willing buyer and an informed and willing seller who are dealing at arm's length with each other." Column 4 is where you enter "Proceeds of disposition during the year." This means the amount of money you received when you got rid of your vehicle, whether you sold the car, scrapped it, or sold it for parts. You can deduct any expenses you incurred from this amount. Column 5 is where you enter "Undepreciated capital cost after acquisitions and dispositions." To get this amount, add column 2 to column 3, and subtract column 4. If this amount is negative, or if you no longer have your property at the end of the year, you cannot claim CCA. If the amount is negative, that means you have a recapture of CCA. You must include this amount on line 104 of your 2017 return. If you no longer have the vehicle, that means you have incurred a terminal loss and you may not deduct this amount from your income. Column 6 is where you enter "Adjustments for current year acquisitions." According to the 50% rule, you can only claim 50% of your net acquisition of a motor vehicle in 2017. To get this figure, subtract column 4 from column 3 and enter 50% of that amount in column 6. If column 4 is greater than column three, this amount will be "nil." Column 7 is where you enter your "Base amount for capital cost allowance claim." To get this number, subtract column 6 from column 5. Your CCA claim will be based on this amount. Remember, to claim CCA, you must still own the vehicle, and the amount in this column must be positive. Column 9 is dedicated to your "Capital cost allowance for the year." To claim CCA, you must still be using your vehicle for the purposes of your employment at the end of 2017. If you started using your car for work part-way through the year, you can still claim CCA for the entire year. But, if you stopped using your vehicle for work at some point and you were no longer using it at the end of the year, you may not claim any CCA. The maximum CCA amount you can claim for your motor vehicle is 30% of the amount in column 7. Column 10 is where you enter your "Undepreciated capital cost at the end of the year." To get this number, subtract column 9 from column 5.
Part B - Class 10.1
If you owned a class 10.1 vehicle in 2017, you will need to fill out Part B of Form T777. The steps to fill out this form are very similar to Part A, minus a few discrepancies, which are explained on the form itself. Enter the total amount of your claim on line 229 of your tax return.
How does the vehicle allowance work?
If you meet the requirements mentioned above, meaning that you worked away from your employer's place of business on a regular basis and paid for your own non-taxable motor vehicle expenses without being reimbursed by your employer, you may also be eligible to claim allowable motor vehicle expenses. Other than the capital cost allowance, expenses you can claim include:
- Fuel (including gasoline, oil and propane)
- General maintenance and repairs
- Insurance
- Licence and registration fees
- The eligible interest you paid on a loan used to buy the vehicle
- Eligible leasing costs.
Even if you received a non-taxable motor vehicle allowance from your employer, you may still be able to claim additional expenses that were not covered by this allowance. To do so, you will need to add the amount of the allowance to your income and make sure to keep a copy of Form T2200 for your records. Wondering how to define a non-taxable vehicle allowance? An allowance is any payment you receive from your employer in compensation for using your own vehicle for work, without having to account for its use. This amount is in addition to any other salaries or wages. It is taxable unless it is based on a reasonable per-kilometre rate.
What are the allowable mileage rates?
In 2019, the reasonable per-kilometre rates are:
- 58¢ per kilometre for the first 5,000 kilometres driven
- 52¢ per kilometre driven after that
Drivers in the Yukon, Nunavut, and in the Northwest Territories add an additional 4¢ per kilometre to these amounts. If you use your car for both business and personal purposes, you can only claim a percentage of this use. In other words, you can only deduct business-related drives that are related to generating income. A great way to track business drives is with a mileage tracking application like MileIQ. Please note that in the eyes of the CRA, driving back and forth between work and home is considered personal use.
