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Deducting Vehicle Capital Cost Allowance in Canada
January 13, 2023 - 2 min read

Deducting Vehicle Capital Cost Allowance in Canada

As a business owner, you can claim depreciation of property you've purchased for your business activities. The CRA has specific regulations on the deductible capital cost allowance depending on the type of property.

You can claim vehicle capital cost allowance as a business owner, and is some cases, as an employee. Properties are grouped into classes, indicating the CCA you can claim. Vehicles can fall into one of the following classes - Class 10, or Class 10.1. Both classes have a maximum capital cost allowance rate of 30%. It is important to know which class your vehicle falls in, in order to fill out your tax return correctly. Find out which class your vehicle is grouped in on CRA’s website.

Capital cost allowance is deducted on a declining balance basis, meaning you claim a higher amount of the vehicle cost in the first year and a lower amount in subsequent years.

Claiming vehicle CCA as a business owner

If you have purchased a vehicle or vehicles for your business, you will be able to claim depreciation, or capital costs allowance, over a period of time. As a business owner, you can claim vehicle CCA at tax time by completing form T2125 - Statement of Business and Professional Activities, Part A. See below how to calculate your vehicle’s capital cost allowance.

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Claiming vehicle CCA as an employee

If you are a salaried or a commission-based employee, you may be able to claim a vehicle capital cost allowance.

As a salaried employee, you need to meet all the following conditions:

  • You were required to work away from your regular place of work
  • You paid your own vehicle-related expenses.
  • You didn’t receive a non-taxable reimbursement for your vehicle expenses from your workplace
  • You have a copy of a completed and signed by your employer Declaration of Conditions of Employment (form T2200)

As a commission employee, you must meet the same conditions as above, as well as :

  • According to your employment contract, you cover your own expenses
  • You were renumerated in whole or in part by a commission or similar amount

What these conditions mean for you is that if you are reimbursed by your employer for your business-related driving expenses, you cannot claim vehicle CCA. If you are eligible for the claim, use form T777 - Statement of Employment Expenses.

Note that you can claim a percentage of CCA that corresponds to the percentage of your business-related driving. If, for example,40% of your recorded kilometres during the year were for business purposes, you will be able to claim 40% of the calculated vehicle CCA.

You must keep a log of your total and business kilometres in order to calculate the business use percentage of your vehicle. Using a mileage-tracking app will help you keep full records by recording every trip you take and let you classify drives s Business and Personal. See more about how Driversnote can simplify keeping a mileage log for you. Wondering what you need to record in your mileage log? See the CRA mileage log requirements in our guide.

Calculating your CCA vehicle claim

Capital cost allowance is based on the purchase price of the vehicle. You shouldn’t include goods and services tax (GST), provincial sales tax (PST) or harmonized sales tax (HST) when calculating the cost of the vehicle for CCA purposes. If the vehicle falls under Class 10.1, there is a limit of $30,000 capital cost you can claim CCA on before GST, PST and HST. Vehicles under Class 10 have no capital cost limit.

If you purchased a vehicle in Ontario costing $20,000 before HST, you can claim a capital cost allowance on $22,600 - the price of the vehicle plus HST.

The first-year maximum vehicle CCA you can claim is $22,600 x 30% = $6780.

Calculating capital cost allowance deductions for the following years is simple. You must first calculate the undepreciated capital cost (UCC), by subtracting the CCA deduction you got last year from the vehicle cost.

In our case, UCC in the second year would be $22.600 - $6780 = $15.820.

Your capital cost allowance claim in the second year will be $15.820 x 30% = $4746.

Continue this calculation each year, until the undepreciated capital cost of the vehicle reaches $0.

FAQ

Motor vehicles and some passenger vehicles fall under CCA Class 10 and some passenger vehicles - under Class 10.1.
Vehicles are considered capital assets, as they depreciate over time and can be sold, resulting in a capital gain or a capital loss.

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