The Department of Finance Canada has announced the automobile income tax deduction limits and expense benefits rates for 2021, which will remain largely the same as 2020 with the exception of one change that came into effect on January 1, 2021.
What is automobile income tax deduction and expense benefits?
When vehicles are used by businesses for both business and pleasure purposes, it’s important to keep a trip log to identify the business use of each vehicle - as your business can then deduct expenses on its tax return.
Motor vehicles expenses include interest on loans to purchase automobiles, capital cost allowance (CCS), automobile leasing costs, and operating expenses such as fuel, oil, maintenance and repairs, licence and insurances costs and car washes.
Automobile income tax deduction limits and expense benefit rates also apply to employees who are provided with automobiles by their employers to help them perform their employment duties.
What will change in 2021?
Most of the limits and rates that applied in 2020 will continue to apply in 2021, with one change taking effect:
- The general prescribed rate used to determine the taxable benefit of employees relating to the personal portion of automobile expenses paid by their employers will be decreased by one cent to 27 cents per kilometre. For people who are employed principally in selling or leasing automobiles, the rate used to determine the employee’s taxable benefit will be decreased by one cent to 24 cents per kilometre.
One further change, which has not been made official yet, is to the automobile standby charge. An official statement from the Department of Finance Canada read:
“In light of the impact COVID-19 lockdowns and public health measures have had on how employees use their employer-provided vehicles, the government is also proposing temporary adjustments to the automobile standby charge.
“For the 2020 and 2021 taxation year, it is proposed that employees be allowed to use their 2019 automobile usage to determine eligibility for the reduced standby charge. Only employees with an automobile provided by the same employer as in 2019 would be eligible for this option.”
What is staying the same?
The following limits from 2020 will remain in place for 2021:
- The limit on the deduction of tax-exempt allowances paid by employers to employees who use their personal vehicle for business purposes will remain at 59 cents per kilometre for the first 5,000 kilometres driven, and 53 cents per kilometre for each additional kilometre. For the Northwest Territories, Nunavut and Yukon the allowance is 4 cents higher, and will remain at 63 cents per kilometre for the first 5,000 kilometres driven, and 57 cents per kilometre for each additional kilometre.
- The ceiling for capital cost allowances (CCA) for passenger vehicles will remain at $30,000, before tax, for non zero-emission passenger vehicles, and at $55,000, before tax, for eligible zero-emission passenger vehicles. These ceilings restrict the cost of a vehicle on which CCA may be claimed for business purposes.
- The maximum allowable interest deduction for new automobile loans will remain at $300 per month.
- The limit on deductible leasing costs will remain at $800 per month, before tax for new leases entered into. For automobiles valued over $30,000, a separate restriction will continue to prorate deductible lease costs.
Want to learn more about automobile income tax deduction limits and expense benefits rates for 2021? Contact Koroll today. Our team of highly-experienced accounting professionals would love to help.
