CRA considers that the CCA deduction for the motor vehicle of a self-employed worker that is used for both business and personal use can be computed by determining the amount of CCA in respect of the motor vehicle as if it were used entirely for business purposes, while deducting annually only the proportion of CCA corresponding to the business use in the particular year. However, CRA effectively indicated that the individual had the choice between the above simplified administrative method and the method actually contemplated by ss. 13(7)(c) and (d) (e.g., recording a capital cost increase of the business-use portion if the portion , provided that such choice was consistently applied.
CRA considers that the CCA deduction for the motor vehicle of a self-employed worker that is used for both business and personal use can be computed by determining the amount of CCA in respect of the motor vehicle as if it were used entirely for business purposes, while deducting annually only the proportion of CCA corresponding to the business use in the particular year.
In 2022, a self-employed worker acquired a passenger vehicle at a cost of $50,000, so that $34,000 was included in Class 10.1. The business-use percentage in 2022 was 40%, and the individual designated the property as designated immediate expensing property, giving rise to a CCA claim of $13,600 for 2022.
In 2023, he sold the passenger vehicle for $38,000. Since the cost to him of the passenger vehicle (a designated immediate expensing property per Reg. 1104(3.1)) was higher than the Reg. 7307(1) limit, s. 13(7)(i) provided that the proceeds of disposition were computed as: $38,000 X $34,000/ $50,000 = $25,840, resulting in recapture of depreciation. However, multiplying this amount by the increased business-use percentage for 2023 of 60% produced an inclusion $15,504, which exceeded the previous claim.
In agreeing with this calculation, CRA confirmed that in using the above method, recapture of depreciation was to be included in the proportion corresponding to the business use in the year of disposition (i.e., 60%). However, CRA stated:
Although the CRA accepts the method previously described for calculating CCA in respect of a motor vehicle used by a self-employed individual for both business and personal purposes, it is important to note that, pursuant to paragraphs 13(7)(c) and 13(7)(d), the capital cost of the property must generally be apportioned on an annual basis between its use for the purpose of earning income and its use for other purposes. Thus, where the property is used for both business and personal purposes, CCA can only be claimed on the proportion of the capital cost related to the business use.
In certain situations, the calculation of CCA and recapture of depreciation may produce a different result depending on the calculation method used. Since the CRA accepts both methods, a self-employed worker can use the one that is most appropriate for the situation. However, the same method must be used for all taxation years.