2021 Vehicle Deduction Limits, Benefits & Tax Updates
This year’s tax return might be a little different depending on how your industry was affected by COVID. There were many changes which created hurdles for both employers and employees. As a result, we’ve put together some guidelines to for your Automobile Deduction Limits & Expense Benefit Rates for Business and Indexation Adjustment for Personal Income Tax and Benefit Amounts.
The ceiling on the capital cost of passenger vehicles for capital cost allowance (CCA) purposes remains at $30,000 (plus applicable federal and provincial sales taxes) for non zero-emission vehicles and at $55 000 for eligible zero-emission passenger vehicles. These ceilings restrict the cost of a vehicle on which CCA may be claimed for business purposes.
Deductible leasing cost limits remain at $800 per month (plus applicable federal and provincial sales taxes). This limit, which ensures that the level of deductions for leased and purchased vehicles is consistent, 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.
Tax-Exempt Allowances Paid by Employers
The limit on the deduction of tax-exempt allowances paid by employers to employees remains unchanged at 59¢ per kilometer for the first 5,000 kilometers driven and 53¢ for each additional kilometer. For the Yukon Territory, Northwest Territories and Nunavut, the tax-exempt allowance is 63¢ for the first 5,000 kilometers driven and 57¢ for each additional kilometer. The allowance amounts reflect the key cost components of owning and operating an automobile, such as depreciation, financing, maintenance and fuel costs.
The maximum allowable interest deduction for amounts borrowed to purchase an automobile remains at $300. This limit reflects the reasonable cost of financing a vehicle for business purposes.
Expense Benefit Rates for Business
The general prescribed rate used to determine the taxable benefit relating to the personal portion of automobile operating expenses paid by employers will decrease by 1¢ to 27¢ per kilometer. For taxpayers employed principally in selling or leasing automobiles, the prescribed rate will decrease by 1¢ to 24¢ per kilometer. The amount of the benefit reflects the costs of operating an automobile. The additional benefit of having an employer-provided vehicle available for personal use (i.e., the automobile standby charge) is calculated separately and is also included in the employee’s income.
2021 Indexation Adjustment for Personal Income Tax and Benefit Amounts
On January 1, 2021, all indexed personal income tax amounts, including tax bracket thresholds and amounts used to calculate non- refundable tax credits, were adjusted by 1%. The Canada Child Benefit and the goods and services tax credit will take effect July 1, 2021.
For 2021 the federal tax bracket thresholds are:
- 15% for taxable income between $0.00 and $49,020;
- 20.5% for taxable income above $49,020;
- 26% for taxable income above $98,040;
- 29% for taxable income above $151,978; and,
- 33% for taxable income above $216,511.
Don’t Wade Through Muddy Waters Alone
Last year was full of change and financial adjustments. Don’t let the unknown scare you – that’s what we’re here for! Not only do we support you throughout the year with bookkeeping and consulting services, when tax time comes we’ll hold your hand as much or as little as you need us to. Contact us today if you need help with your personal or business taxes. That’s why we’re the small business pros.