Ottawa, December 6, 2005
Archived - Automobile Deduction Limits and Expense Benefit Rates for Business Confirmed
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The automobile expense deduction limits and the prescribed rates for the automobile operating expense benefit will apply in 2006 as follows:
- The ceiling on the capital cost of passenger vehicles for capital cost allowance (CCA) purposes will remain at $30,000 (plus applicable federal and provincial sales taxes) for purchases after 2005. This ceiling restricts the cost of a vehicle on which CCA may be claimed for business purposes.
- The limit on deductible leasing costs will remain at $800 per month (plus applicable federal and provincial sales taxes) for leases entered into after 2005. This limit, which ensures that the level of deductions for leased and purchased vehicles is consistent, is one of two restrictions on the deduction of automobile lease payments. A separate restriction prorates deductible lease costs where the value of the vehicle exceeds the capital cost ceiling.
- The maximum allowable interest deduction for amounts borrowed to purchase an automobile will remain at $300 per month for loans related to vehicles acquired after 2005. This limit reflects the reasonable cost of financing a vehicle for business purposes.
- The limit on the deduction of tax-exempt allowances paid by employers to employees using their personal vehicle for business purposes will increase by 5 cents to 50 cents per kilometre for the first 5,000 kilometres driven and 44 cents for each additional kilometre. For the Northwest Territories, Yukon and Nunavut, the tax-exempt allowance will rise by 5 cents to 54 cents for the first 5,000 kilometres driven and 48 cents for each additional kilometre. The allowance amounts reflect the key cost components of owning and operating an automobile, such as depreciation, financing, insurance, maintenance and fuel costs.
- The general prescribed rate used to determine the taxable benefit relating to the personal portion of automobile operating expenses paid by employers will increase by 2 cents to 22 cents per kilometre. For taxpayers employed principally in selling or leasing automobiles, the prescribed rate will be increased by 2 cents to 19 cents per kilometre. The amount of the benefit reflects the costs of operating an automobile. The additional benefit of having an employer-provided vehicle available for personal use (i.e. the automobile standby charge) is calculated separately and is also included in the employee's income.
The Government reviews these rates and limits annually, and announces any planned changes prior to the end of the calendar year. This practice ensures that businesses are aware of the new rates before the beginning of the year in which they apply.
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