What do commissioned sales people and Uber drivers have in common? They each will want to know the difference between an automobile, a passenger vehicle and a motor vehicle, especially if they are keen on claiming all the deductions possible against their income this tax season. Especially when using a car for salaried work, commission sales or self-employment, it pays to file an audit-proof return, as these claims are often audited.
An automobile for tax purposes can be either a “motor vehicle” or a “passenger vehicle”. In general, neither will carry more than 8 passengers and a driver. However, a passenger vehicle is going to have restrictions on the amounts claimed for certain fixed expenses, specifically capital cost allowance (CCA), interest and leasing costs, while a motor vehicle will not.
A passenger vehicle, which for capital cost allowance purposes will be placed in Class 10.1 if its costs are more than $30,000 plus taxes, will not be an ambulance, taxi, bus, funeral vehicle or any other vehicle used primarily (50% of the time or more) for transporting passengers.
This means that “Uber” drivers will need to keep solid track of the use of their vehicles for personal and Uber purposes. It the auto’s use slips over into 51%, the motor vehicle classification can apply, even for autos valued at more than $30,000.
CRA itemized the differences for claiming passenger vehicles compared to motor vehicles on their website. It’s reproduced below, but with some additional clarifications, to enable tax specialists and their clients to have better conversations on what the tax forms mean in the height of tax season:
|Claiming Autos on Your T1: The Difference Between Motor Vehicles and Passenger Vehicles|
|Class 10Motor Vehicle||Class 10.1Passenger Vehicle|
|Group all vehicles owned in one CCA class||yes||no|
|List each vehicle (rather than pooling all cars) in the class||no||yes|
|Maximum capital cost restricted to $30,000 plus tax||no||yes|
|Half year rule (50% of deduction) in first year of acquisition||yes||yes|
|Half-year rule on disposition of automobile||no||yes|
|Recapture of overclaimed CCA on disposition or trade-in||yes||no|
|Terminal loss on disposition or trade-in||no||no|
It’s also important to have this conversation before an automobile is acquired or disposed of and often that’s at year end. Most important, keep those distance logs. Taxpayers must verify the distance they drive for personal and business purposes if the same vehicle is used for both purposes. See a DFA-Tax Services Specialist now to discuss these claims, which unfortunately are frequently audited.