Claiming Capital Cost Allowance on Your Car in Ontario

If you're a Canadian business owner in Ontario who uses a car for work purposes, you might be interested in claiming Capital Cost Allowance (CCA) on your vehicle.

 

CCA is a tax deduction that allows you to recover the cost of your car over time. Here’s a straightforward guide to help you understand how to claim CCA on a car, especially if you bought it from a dealership.

 

What is Capital Cost Allowance (CCA)?

Capital Cost Allowance (CCA) is a tax deduction offered by the Canada Revenue Agency (CRA) that allows you to write off the cost of a vehicle used for business purposes over several years.

 

Instead of deducting the entire cost of the car in the year you purchase it, CCA lets you spread this deduction over a set period.

 

How Does CCA Work?

When you claim CCA, you are essentially writing off the cost of the vehicle over time, according to specific rules. The CRA groups vehicles into classes, each with its own depreciation rate.

 

For cars, the most common class is Class 10 or 10.1, which typically allows a 30% annual deduction on a declining balance.

 

How to Claim CCA on a Car

• Determine the Cost of the Vehicle: Start by noting the purchase price of the car, including taxes and any additional expenses related to getting the vehicle ready for use. This total amount is known as the "capital cost" of the car.

 

• 1. Classify the Vehicle: The vehicle will fall into a specific CCA class. For most cars, this is Class 10 or 10.1. Check with the CRA or a tax professional to ensure proper classification.

 

• 2. Calculate the Deduction: Use the CCA rate for the relevant class to determine your annual deduction. For Class 10 vehicles, this is typically 30%. Remember, the deduction is calculated on the remaining balance each year, not the original purchase price.

 

• 3. Keep Accurate Records: Maintain detailed records of your vehicle's use, including business and personal mileage. Only the portion used for business can be claimed.

 

• 4. File Your Claim: When you file your taxes, include the CCA claim on your business tax return. You can do this using the T2125 form for self-employed individuals or other applicable forms depending on your business structure.

 

Example

Let's say you bought a car for $30,000 plus $3,900 in taxes, making the total capital cost $33,900. If this vehicle is classified under Class 10 with a 30% CCA rate, you would calculate the deduction as follows:

 

• Year 1 Deduction: 30% of $33,900 = $10,170
• Remaining Balance: $33,900 - $10,170 = $23,730

 

In Year 2, you would then calculate 30% of the remaining balance.

 

Important Tips

• Eligibility: Only vehicles used primarily for business can be claimed for CCA. Ensure you use the car for business purposes and keep accurate logs of business use.

 

• Limits and Restrictions: Be aware of any limits on the amount you can claim. The CRA sets maximum limits for certain types of vehicles.

 

• Consult a Tax Professional: Tax rules can be complex. It’s a good idea to consult a tax professional to ensure you’re claiming CCA correctly and taking full advantage of available deductions.

 

Lenders and Income Verification

When applying for financing to buy a car from a dealership, it's important to note that it is the lenders who verify your income, not the dealership.

 

Lenders assess your financial situation to determine your ability to repay the loan. The dealership facilitates the purchase but does not handle the income verification process.

By understanding the basics of CCA and keeping accurate records, you can effectively manage your tax deductions. Always consult with a tax professional to ensure compliance with CRA regulations and maximize your benefits.