Canada does not have an equivalent to the Section 179 rule which allows US business owners to expense or write off the purchase of vehicles over 6,000 lbs.
However, Canadians can expense reasonable motor vehicle expenses when used to produce income as well as depreciate the vehicle over its useful life.
Depreciating the vehicle over its useful life is different from expensing it.
Motor Vehicle Expenses
When referring to taxes, the term write off is used to describe any expenses that can be subtracted from taxable income.
Writing off expenses allows business owners to pay less in taxes.
Many expenses that are incurred throughout the course of opening and running a business may be eligible for write-offs.
If you are using your vehicle to generate business income, the below expenses can be deducted.
Business income can include self-employment income and in some cases commission based and salaried employees may also be eligible.
These expenses can be deducted:
- Licence and registration fees
- Fuel and oil
- Electricity for zero-emission vehicles
- Insurance
- Maintenance and repairs
- Interest paid when financing a vehicle
- Leasing costs
The type of vehicle you own will impact the expenses you can deduct.
There are 4 types:
- Motor vehicles
- Passenger vehicles
- Zero-emission vehicles
- Zero-emission passenger vehicles
Definitions of the types of vehicles can be found on the CRA website.
Motor Vehicle Depreciation
Business owners in Canada can depreciate the cost of the vehicle used for business purposes.
The CRA call’s this Capital Cost Allowance (CCA) and it allows you to claim depreciation on a portion of the vehicle’s cost each year.
The amount you can claim depends on the class, with motor vehicles fitting in Class 10, Class 10.1, Class 54 or Class 55.
In the majority of cases, you will be able to deduct 30% of the vehicle’s cost yearly.
In the year of purchase, the CRA has a half-year rule, which would usually reduce this amount to 15%
This deduction amount will lower your net income for the year, which results in you having to pay less business taxes.
There is an exception with eligible electric vehicles purchased between 2019 – 2028 that will allow business owners to depreciate 100% of the cost.
All of the above have particular requirements and rules that need to be met or adhered to.
It’s important to consult your accountant and the CRA to understand the nuances are motor vehicle expenses and depreciation.
Full definitions of Classes can be found on CRA’s CCA page.
