Dec 2017

2018 Canadian Deduction Limits and Expense Rates Announced

The Department of Finance Canada has announced the 2018 automobile expense deduction limits and the expense rates that are utilized for calculating operating expense benefits. A few highlights of the announcement include:

Changes for 2018

1.   The limit on the deduction of tax-exempt allowances that are paid by employers to employees who use their personal vehicle for business purposes for 2018 will be increased by 1 cent to 55 cents per kilometer (CPK) for the first 5,000 kilometers driven, and to 49 CPK for each additional kilometer to reflect that, since the last change to this limit, the per kilometer costs associated with owning and operating an automobile have increased by roughly 1 cent. For the Northwest Territories, Nunavut and Yukon, the tax-exempt allowance is 4 cents higher, and will be increased to 59 CPK for the first 5,000 kilometers driven, and 53 CPK for each additional kilometer.

These allowances are intended to reflect the main costs of owning and operating an automobile, such as depreciation, financing, insurance, maintenance and fuel.

2.   The general prescribed rate that is used to determine the taxable benefit of employees relating to the personal portion of automobile operating expenses paid by their employers will also accordingly be increased by 1 cent to 26 CPK. For taxpayers who are employed principally in selling or leasing automobiles, the prescribed rate used to determine the employee’s taxable benefit will be increased by 1 cent to 23 CPK.

The additional benefit of having an employer-provided vehicle available for personal use (i.e., the automobile standby charge) is calculated separately based on capital costs and is also included in the employee’s income.

Unchanged Provisions for 2018

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 2017. This ceiling restricts the cost of a vehicle on which CCA may be claimed for business purposes.

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 2017.

The limit on deductible leasing costs will remain at $800 per month (plus applicable federal and provincial sales taxes) for leases entered into after 2017. This limit 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.

A link to the original announcement from the Department of Finance Canada is below.

Department of Finance Canada