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Motor Vehicles vs. Passenger Vehicles for Tax Purposes

Tax Question:

What is the difference between motor vehicles and passenger vehicles for tax purposes?

Facts:

Canada Revenue Agency (CRA) has defined what the difference is between motor vehicles and passenger vehicles. Motor vehicles are more favourable for tax deductions. 

Discussion:

Per CRA, definitions are:

A motor vehicle is an automotive vehicle designed or adapted for use on highways and streets. A motor vehicle does not include a trolley bus or a vehicle designed or adapted to be operated only on rails. a motor vehicle is an automotive vehicle designed or adapted for use on highways and streets.

A passenger vehicle is a motor vehicle that is owned by the taxpayer (other than a zero-emission vehicle) or that is leased, and designed or adapted primarily to carry people on highways and streets. It seats a driver and no more than eight passengers. Most cars, station wagons, vans, and some pick-up trucks are passenger vehicles.

Having a motor vehicle (Class 10 asset) is better for tax purposes as it does not have a cap in regards to deductions such as capital cost allowance and interest. Passenger vehicles (Class 10.1) have a maximum vehicle cost allowed of $34,000 plus GST/PST for 2022 (prior years’ maximum was $30,000), if the vehicle exceeds the maximum allowed all deductions in excess of that maximum amount will be ignored. 

To determine whether a vehicle is a passenger vehicle (Class 10.1) or a motor vehicle (Class 10) there are three things that need to be considered:

  • The type of vehicle—is it a sports car, a truck, a sedan or an SUV?
  • The use—is it used to transport goods, equipment or passengers?
  • How much of the use is business-related—how much is it used for business purposes?

For a vehicle to be classified as a motor vehicle the following has to occur:

  • It must be used to transport goods equipment or passengers for business purposes
  • It must be used primarily for business activities
    • If the vehicle seats 1-3 people this is classified as over 50% business use
    • If the vehicle seats 4 or more, this is classified as 90% or more business use

Certain vehicles such as sports cars, luxury vehicles and sedans will be classified as passenger vehicles irrespective of the amount of business use.

The tax rules require the taxpayer to prove their position, so it is mandatory to have a vehicle log to demonstrate business use if you are using a ratio of kilometres driven as a key argument in claiming the vehicle as a motor vehicle.


If you would like more information on this topic, please contact a member of the EPR Maple Ridge Langley team by filling out the contact form below.

Canadian and foreign tax laws are complex and have a tendency to change on a frequent basis. As such, the content published above is believed to be accurate as of the date of this post. Before implementing any tax planning, please seek professional advice from a qualified tax professional. EPR Maple Ridge Langley, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above.


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