The Tax Implications Between New Vehicles—Class 10 And Class 10.1 Assets

Grant Gilmour

Any vehicle with a purchase cost of over $30,000 can be classed as a luxury vehicle (a 10.1 asset). This classification restricts the amount of depreciation that can be deducted from income which reduces your corporate expenses and increases your corporate tax. It also limits the amount of Goods and Service Tax (GST) that can be recovered. The determining factor is whether the vehicle is a passenger vehicle or a motor vehicle by Canada Revenue Agency’s definitions.

Discussion

 

To determine whether a vehicle is a passenger vehicle (class 10.1) or a motor vehicle (class 10), there are three things that have to be looked at:

  • The type of vehicle – is it a sports car, a truck, a sedan or a SUV?
  • The use – is it used to transport goods, equipment or passengers?
  • How much of that use is business related – how much is it used for business purposes?

Having a class 10 asset is better for tax purposes as it allows more deductions.

For example: A pick-up truck that costs over $30,000 and seats 1-3 people including the driver may be classified as a motor vehicle (class 10) with no depreciation restrictions, only if it is used more than 50% of the time, in the year of purchase, for business purposes to transport goods and equipment. Whereas a SUV that seats 4-9 people including the driver may be classified as a motor vehicle (class 10) with no depreciation restrictions only if it is used more than 90% of the time, in the year of purchase, for business purposes to transport goods or equipment.

Certain vehicles such as sports cars and sedans will be classified as a passenger vehicle irrespective of the amount of business use. So, your brand new Lexus GS 350 costing over $50,000 will be subject to the depreciation restrictions even if it is used 100% for business.

The tax rules require the taxpayer to prove their position, so it is important to have a vehicle log to demonstrate business use if you are using a ratio of kilometers driven as a key argument in claiming the vehicle as a class 10 asset.

Grant has been in the CA business since 1988, starting his own practice in 1994. His tax expertise encompasses tax planning, international tax issues, and Scientific Research and Development tax credits. He is a graduate of the CICA In-Depth Tax Course and in 2012, Grant received the CA Community Service Award and the Scout Leader Medal.

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