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
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 on the last day of each taxation year. Our apologies for the fact that we had incorrect information about this for a period of time. See CRA document GI-038 The 2008 GST/HST Rate Reduction, under the title Purchase of a passenger vehicle for a sole proprietor or partnership for confirmation that the rate on the last day of each taxation year is the appropriate rate to be used.
On or after July 1, 2010:
On or after July 1, 2006 and before July 1, 2010:
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.
If the purchaser was a business in Nova Scotia, and paid 13% 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 be 15/115. For partnerships and individuals in Ontario, the rate for a year end after July 1, 2010 is 13/113.
The input tax credit each year is based upon the GST/HST rate applicable at the end of the year. The cost of the passenger vehicle eligible for an input tax credit is limited to the limitation for capital cost allowance purposes.
Following is a reproduction of the CRA table in GST Memorandum 8-2 outlining ITC entitlements on passenger vehicles and aircraft:
(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.
Revised: September 02, 2014
Copyright © 2002 - 2016 Boat Harbour Investments Ltd. All Rights Reserved See Reproduction of information from TaxTips.ca