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ITCs on Vehicles and Aircraft

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Sales Taxes ->GST/HST -> Vehicles and aircraft input tax credits for GST/HST

GST/HST input tax credits on purchase of passenger vehicles and aircraft

The amount of input tax credit (ITC) that can be claimed for the purchase of passenger vehicles and aircraft depends on

bullet

cost of the item, and

bullet

type of business entity, and

bullet

percentage of use in commercial activities

There is a maximum capital cost on which an ITC may be claimed for a passenger vehicle.  For 2001 and later years, this maximum is $30,000 (excluding GST/HST and provincial sales taxes), which is the same as limit for capital cost allowance.  This limit applies to all types of business entities, and has not been increased since 2001.  The Department of Finance normally has a news release at the end of December each year to announce capital cost limits for passenger vehicles.

See the Canada Revenue Agency (CRA) table of Vehicle Definitions on our Business page.

a.    Corporations and public service bodies, other than financial institutions

Excise Tax Act s. 199(2)

If the passenger vehicle or aircraft is acquired for use primarily (more than 50%) in the commercial activities of the registrant, the ITC is 100% of the GST/HST paid, subject to the above capital cost limitation.  Otherwise, no ITC may be claimed.  The ITC is claimed in the GST/HST return for the period in which the acquisition occurred.

b.    Partnerships and Individuals

Excise Tax Act s. 202(2), 202(4)

If the passenger vehicle or aircraft is acquired to be used all or substantially all (90% or more) in the commercial activities of the registrant, the ITC is 100% of the GST/HST paid, subject to the above capital cost limitation.  This ITC would be claimed in the GST/HST return for the period in which the acquisition occurred.  The 100% ITC is available even if the vehicle may be made available to an employee for personal use.  However, the personal use by the employee will result in a taxable benefit to the employee, which will be subject to GST/HST.

If the use in commercial activities of the registrant is 10% or less, no ITC can be claimed.  Otherwise, the ITC is based on the capital cost allowance (CCA) claim for the vehicle at the end of each tax year, except in a year in which the use of the passenger vehicle or aircraft results in a taxable benefit to an employee of the business.  In this case, no ITC can be claimed in the year.  Once the CCA has been calculated for the vehicle, calculate your ITC as shown in the calculations below.

The calculations are based on the GST or HST rate in effect for your province or territory at the time of the purchase.

When your purchase is made on or after July 1, 2010:

  After
Jul 1/10
In a province or territory in which only GST is collected CCA x 5/105
In a participating province (HST is collected):

- in BC          

CCA x 12/112
- in Nova Scotia           CCA x 15/115
- in the remaining participating provinces           CCA x 13/113

When your purchase is made on or after July 1, 2006 and before July 1, 2010:

End of tax year Jan 1/08
to
Jul 1/10
Jul 1/06
to
Dec 31/07
In a province in which HST is collected (Nova Scotia, New Brunswick, Newfoundland and Labrador) CCA x 13/113 CCA x 14/114
In a province in which only GST is collected  CCA x 5/105 CCA x 6/106

Example:  a self-employed person in British Columbia purchases a passenger vehicle in 2009 for $32,000 + 5% GST + 7% PST = $35,840.  The vehicle will be used approximately 60% for business use, and 40% for personal use, so the ITC is based on the capital cost allowance for the vehicle at the end of each year.  The example below uses 60% business use in each year, where in reality it is not likely the % would be the same in each year, as it is based on actual business mileage (see Trip Log on the Business page).

The CCA rate for passenger vehicles is 30%, and the half-year rule applies, so the CCA for the first year is only 15% of the lesser of $30,000 or the purchase price, plus tax. 

  Year  1 (2009 tax year - 5% GST)

Cost added to CCA class 10.1 (max allowed) 
= $30,000 + 5% GST + 7% PST
$33,600
CCA (half-year rule) = 15% x $33,600 $5,040
Business portion @60% $3,024
GST input tax credit year 1 = $3,024 x 5/105 $144
 

Year 2 (2010 tax year - 12% HST)
ITC still based on 5/105 re purchase date

Beginning UCC = $33,600 - $5,040 - $144 $28,416
CCA = 30% x $28,416 $8,525
Business portion @60% $5,115
HST input tax credit year 2 = $5,115 x 5/105 $244

If the purchaser was a business in Nova Scotia, and paid 14% HST when purchasing a vehicle prior to July 1, 2010, the rate used to calculate the input tax credit for the vehicle, for a year end after July 1, 2010, would still be 14/114.  For partnerships and individuals in Ontario, the rate for a year end after July 1, 2010 is 5/105 if only GST was paid on the purchase of the vehicle prior to July 1, 2010.

The input tax credit each year is based upon the GST/HST rate applicable when the vehicle was purchased.

Following is a reproduction of the CRA table outlining ITC entitlements on passenger vehicles and aircraft:

ITC Entitlement on Passenger Vehicles and Aircraft

% of use in
commercial
activities
General registrants
(corporations) and
public service bodies
GST/HST registered
individuals and
partnerships
Financial
institutions
≤ 10% No ITC No ITC ITC = actual
% of use
> 10% up to 50% No ITC CCA based ITC(1) ITC = actual
% of use
>50% and < 90% Full ITC(2) CCA based ITC(1) ITC = actual
% of use
≥ 90% Full ITC(2) Full ITC(2) ITC = actual
% of use

Notes:
Re symbols used above:

bullet

≤ means less than or equal to

bullet

> means greater than

bullet

< means less than, and

bullet

≥ means greater than or equal to

(1) except where the use of the passenger vehicle or aircraft results in a taxable benefit under paragraph 6(1)(e) of the Income Tax Act (standby charge).

 

Canada Revenue Agency (CRA) resources

As of December 3, 2010 CRA was rewriting much of their documentation which refers to this topic.  The documentation being rewritten may not be available.  Other documentation is available, but is in need of being rewritten.  For this reason, make sure you ensure that any documentation that you review is up to date for the current rules.
bullet

RC4022 General Information for GST/HST Registrants

bulletGST/HST Memoranda Series Chapter 8-1, General Eligibility Rules May 2005
bulletGST/HST Memoranda Series Chapter 8-2, General Restrictions and Limitations Feb 2012
bulletGST/HST Memoranda Series Chapter 8-3, Calculating Input Tax Credits Feb 2012

 

Revised: September 06, 2012

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