Acquired new car: CCA, DIEP, capital gain?

[ottawa]

I'm always confused by CCA (depreciation). Trying to help someone who's self-employed but also collecting CPP and OAS. I use UFile for my own taxes. I know CCA is calculated on each class as a whole, and if you junk a computer (say) you don't get to write it off immediately. But I did think cars were a special case with different rules.

Last year they bought a new car (class 10) and got $1500 trade value on old (also class 10), which was sitting at about $450 UCC (I think that's the term, value on the books). Business km is about 60% of the total km.

Do I create separate forms for each car, or one form where I start with old car, an entry for acquisitions, and an entry for dispositions, all on one? I think it's the former, and it seems to be working. The CCA calculation has box 5 (proceeds of disposition) at $450 and box 9 (immediate expensing amount for DIEPs) at the full purchase price.

I was expecting UFile to generate a $1050 capital gain automatically, but it didn't. (Under Dispositions, I put the trade-in value and for ACB I used the UCC from 2021). I created a capital gain manually but it feels wrong and made me wonder if I did something wrong.

Also wondering about this new immediate expensing rule (DIEP). Writing off the new car as an expense in 2022 will drop their marginal rate to 20% from their usual 30%. From CRA site it sounds like they can't expense partly in 2022 and the rest in 2023. Is there any argument for doing it as CCA to get 30% over the years, instead of some 30% and some 20%?

Any advice will be appreciated. Thanks.

[Geo123]

Hello ottawa,

(1.)  new immediate expensing rule (DIEP)

It is unlikely this would apply to you.

The government is proposing to expand eligibility for the $1.5 million temporary immediate expensing measure to investments in eligible property made by unincorporated businesses carried on directly by Canadian resident individuals (other than trusts) and certain eligible partnerships. This measure would be effective for investments made on or after January 1, 2022 that become available for use before 2025 (in the case of an individual or a partnership all the members of which are individuals) or before 2024 (for other partnerships).

https://www.canada.ca/en/department-finance/news/2022/02/expansion-of-the-eligibility-for-tax-support-for-business-investments.html

(2.) Change of vehicles

You have changed your vehicle in the tax year, and both vehicles - the old and the new - are in the same class of cars, namely the cars that are less than $30,000 before taxes. (for example - is same for over $30,000)

At first, you must calculate all the expenses that you've incurred for both vehicles, such as fuel costs, insurance expenses and others. Furthermore, you will have to calculate the total kilometers (KM) traveled in the tax year as well as the number of kilometers traveled for business purposes. To do so, follow the steps below:

1- On the "Left side menu of the Interview tab", select the "Self-employment income" section.
2- Complete the "Business ID" and "Income, expenses" pages according to the information that you have. Click on "Next" at the bottom of the page after you've completed each page.
3- At the subsection "Motor vehicle expenses" page, in the first part, the information on your hold vehicle were carried over. Make sure that "Class 10" has been selected for the CCA class of the vehicle.
4- On the second (2nd) section of this page, "Addition of a vehicle" on line "Description of the vehicle and vehicle cost" enter a brief description of the car and its acquisition cost.
5- At the line "Application of half-year rule to current year additions", choose "Yes" from the drop-down menu.
6- In the third (3rd) section "Disposition of the vehicle", enter the information on selling your old vehicle. As the price sold you enter the total amount online "Proceeds of disposition of an asset".
7- For the line "ABC of the disposition", enter the Adjusted Cost Base of the vehicle sold.
8- At the line "Did you liquidate all asset in this class?" the answer is "No".
9- For the line "ACB of the disposition", indicate the total amount received in payment. If the proceeds of the disposition of the property exceed the ACB, the result will be a capital gain.
10- In this case, return to "Interview setup" and choose "Investment income and expenses" icon, check "Capital gains (or losses) and capital gain history" and click "Next" at the bottom of the page.
11- You must enter the gain separately under the section "Capital gains (or losses) & ABIL" and on the screen to the right, select "Real estate, depreciable property and others properties" option.
12- On the page that appears, enter the information on the sale of your vehicle.
13- If you want to limit the CCA, for the line "Limit to the CCA of this vehicle (leave blank for maximum CCA)", enter the desired amount. Otherwise, leave the field blank to obtain the maximum CCA.

The program will carry over the amounts on lines 9281 and 9936 of federal form T2125 and on lines 220 and 240 of Quebec form TP-80.

Also, if you made a capital gain, Schedule 3, and schedule G for Quebec residents, will be generated by the program.

For more information, consult the CRA's guide by clicking on the following link:

https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4044.html

NOTE: We suggest you keep a record for each year you claim expenses. Mainly for using your vehicle that statement must set out firstly, total kilometers traveled, and secondly the mileage for your job and all expenses incurred in the tax year.

[ottawa]

Thank you. I'm sorry but I'm confused by both your answers. Could you clarify for me if possible?

Quote

It is unlikely [DIEP] would apply to you.

Why would it not? A car purchased in 2022 by a sole proprietorship would seem to be "investments in eligible property made by unincorporated businesses carried on directly by Canadian resident individuals ... effective for investments made on or after January 1, 2022 that become available for use before 2025". And UFile 2022 mentions it on the Motor Vehicle Expenses > Purchased Vehicle page (see attachment). Other than thinking I misunderstood, if the proprietorship _is_ eligible for DIEP on the vehicle, is it better to take it (and drop marginal rate from 30% to 20%), or do CCA as normal? Or is there some way to claim just enough DIEP to stay in 30%, and claim the rest in following years (either as DIEP or CCA)?

Quote

7- For the line "ABC of the disposition", enter the Adjusted Cost Base of the vehicle sold.
8- At the line "Did you liquidate all asset in this class?" the answer is "No".
9- For the line "ACB of the disposition", indicate the total amount received in payment

I assume that should read "9- For the line 'Proceeds of disposition of the asset', indicate the total amount received in payment". Is that correct?

And my earlier conclusion was right, that UFile is not going to generate a capital gain when the proceeds of disposition are greater than ACB? For #10-#12, it seems to me that UFile already has all that information (except province) from the Motor Vehicle Expenses. I just wanted to make sure I wasn't doing something that was stopping UFile from completing the steps automatically.

Thanks.

 

[dennisimus]

On 4/30/2023 at 4:27 PM, ottawa said:

I'm always confused by CCA (depreciation). Trying to help someone who's self-employed but also collecting CPP and OAS. I use UFile for my own taxes. I know CCA is calculated on each class as a whole, and if you junk a computer (say) you don't get to write it off immediately. But I did think cars were a special case with different rules.

Last year they bought a new car (class 10) and got $1500 trade value on old (also class 10), which was sitting at about $450 UCC (I think that's the term, value on the books). Business km is about 60% of the total km.

Do I create separate forms for each car, or one form where I start with old car, an entry for acquisitions, and an entry for dispositions, all on one? I think it's the former, and it seems to be working. The CCA calculation has box 5 (proceeds of disposition) at $450 and box 9 (immediate expensing amount for DIEPs) at the full purchase price.

I was expecting UFile to generate a $1050 capital gain automatically, but it didn't. (Under Dispositions, I put the trade-in value and for ACB I used the UCC from 2021). I created a capital gain manually but it feels wrong and made me wonder if I did something wrong. When you get a new car, it's worth remembering the financial aspects of the purchase. CCA (Canada Tax Credit) and DIEP (Individual Investment Plan) can be considered when purchasing a car in the context of the investment and potential capital benefits. However, even a new hunting vehicle can be damaged, or this can be done artificially by reading article https://www.agmglobalvision.com/how-to-spoil-your-hunting-car, if you do not pay attention to its maintenance and care. Smart planning and regular maintenance can help you avoid problems and keep your hunting vehicle in top shape.

Also wondering about this new immediate expensing rule (DIEP). Writing off the new car as an expense in 2022 will drop their marginal rate to 20% from their usual 30%. From CRA site it sounds like they can't expense partly in 2022 and the rest in 2023. Is there any argument for doing it as CCA to get 30% over the years, instead of some 30% and some 20%?

Any advice will be appreciated. Thanks.

I liked your thought pretty!

[RaphaelJarvis]

Your approach seems on point, separate forms for each car, handling acquisitions and dispositions individually. The capital gain might need manual input; tax software can be a bit finicky. As for the immediate expensing rule (DIEP), the CRA usually requires it in the year of acquisition, impacting the marginal rate. It's a trade-off between immediate savings and long-term benefits. Check www.shipvehicles.com for potential insights into handling vehicle-related tax aspects.