Let's review vehicle use and the implications that it has in an audit and for taxation.
Any vehicle used in the course of business should be equipped with a logbook to record the business vs. personal mileage. If during the course of an audit, the percentage of business and personal use of a vehicle is questioned, it is up to you to prove that the mileage is accurate. The simplest way to do this is through the use of a log book.
There are two major classifications of vehicles: passenger and motor and the tax implications of each are different. A passenger vehicle includes most cars (luxury and sport), station wagons, vans, and pickup trucks that seat more than 3 people. These vehicles are subject to limitations for tax purposes. The capital cost on which depreciation is calculated is limited, so as the vehicle ages, you will only be able to deduct the cost of the vehicle up to a maximum of $30,000. Interest is limited to a maximum of $300 per month and if leased the monthly lease payment deductible cannot exceed $800 per month. The GST eligible to be refunded is also limited to $1,500. A motor vehicle is not subject to these limitations. These limitations have not changed since December 31, 2000, even though the prices of vehicles have increased since that time while we do not agree with the imposed limits, it is what it is and the only way to encourage change regarding these rules is to write into your MP.
To qualify as a motor vehicle and to avoid these restrictions the car, SUV, or more than 3-passenger automobile must be used 90% or more in the course of business to transport goods, equipment, or passengers. A pick-up truck/van/SUV that seats 1 to 3 individuals but is used 50% or more in the course of business to transport goods, equipment, or passengers is also classified as a motor vehicle.
It is important to determine the classification of each vehicle used in your business for tax purposes.
Please write in with your questions to frankie@nashgirouxllp.ca.
The information provided is of a general nature. As each individual or company’s situation is unique, you may wish to consult with your CPA for information specific to your own needs.