Automobile capitalization on T1

groobi · ‎April 28, 2023

I have a client who bought a Tesla in 2022 and he uses it for business 90% of the time. When I capitalize the car, I have 2 options. One is to capitalize 90% of the purchase price by indicating personal 10% on T2125 asset details and claim CCA without adjustments. The other option is to capitalize 100% of the purchase price (no personal portion) and adjust CCA by recording KM travelled in carrying on your activity and Total KM.

Assuming purchase price of $59,000, both options provide the same CCA but there is a remaining UCC for the second option while no UCC balance for first option.

Which option is correct?

janisbossenberry · ‎May 01, 2023

The reason you are getting zero UCC carry forward looks like it is due to the Immediate Expensing being utililized when you put the vehicle on the T2125. Note that you have to reduce the amount of CCA claimed under the Immediate Expensing rule to the amount of the net income before CCA from the business. You would have to override the CCA expense on the T2125 CCA form. The remaining UCC then goes into a different column and the normal 30% is claimed.

If a passenger vehicle is used substantially all of the time for business (90% is substantially all), then you can capitalize the entire cost and then restrict it by the number of KM driven. That would be best if the 90% varies from year to year (which presumably it would). Keep in mind that travel from place of business to home is personal......

Also, remember that this is a passenger vehicle so the capital cost is restricted to $34,000 plus GST & PST on $34,000.

View solution in original post

janisbossenberry · ‎May 01, 2023

The reason you are getting zero UCC carry forward looks like it is due to the Immediate Expensing being utililized when you put the vehicle on the T2125. Note that you have to reduce the amount of CCA claimed under the Immediate Expensing rule to the amount of the net income before CCA from the business. You would have to override the CCA expense on the T2125 CCA form. The remaining UCC then goes into a different column and the normal 30% is claimed.

If a passenger vehicle is used substantially all of the time for business (90% is substantially all), then you can capitalize the entire cost and then restrict it by the number of KM driven. That would be best if the 90% varies from year to year (which presumably it would). Keep in mind that travel from place of business to home is personal......

Also, remember that this is a passenger vehicle so the capital cost is restricted to $34,000 plus GST & PST on $34,000.

groobi · ‎May 01, 2023

Thank you for replay Janis,

It helped a lot. Where can I find info about automobile capitalization depending on business use %? Appreciated.

janisbossenberry · ‎May 01, 2023

CRA's guide #T4002 has lots of good information. Chapter 4, pages 77 to 78 have some examples. Also look at the definitions for passenger vehicle, zero-emissions vehicles, immediate expensing, etc. pages 7 to 9.

groobi · ‎May 02, 2023

Hi Janis,

Can I ask one more question? How do you adjust CCA for personal portion (say, automobile 50% used personally) on T2? I don't think I can make an adjustment on S8. Should I add back the CCA for the personal portion on S1?

janisbossenberry · ‎May 03, 2023

If a vehicle is owned by a corporation and is set up at 100% of the capital cost on the CCA schedule, then personal use of the company asset is different. You need to determine a stand-by charge and issue a T4 for that vehicle stand-by charge.

Usually, if a vehicle is not use more than 50% in the business, then it is better to own it personally and be paid a reimbursement for business use of the personal vehicle. The stand-by charge which applies when a shareholder uses a corporate-owned vehicle can be quite punitive.

groobi · ‎May 04, 2023

Thank you!