Government Announces the 2018 Automobile Deduction Limits and Expense Benefit Rates for Businesses
December 22, 2017 – Ottawa, Ontario – Department of Finance Canada
The Department of Finance Canada today announced the income tax deduction limits and expense benefit rates that will apply in 2018 when using an automobile for business purposes.
Most of the limits and rates that applied in 2017 will continue to apply in 2018, with two changes taking effect as of 2018:
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 kilometre for the first 5,000 kilometres driven, and to 49 cents per kilometre for each additional kilometre to reflect that, since the last change to this limit, the per kilometre 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 cents per kilometre for the first 5,000 kilometres driven, and 53 cents per kilometre for each additional kilometre. These allowances are intended to reflect the main costs of owning and operating an automobile, such as depreciation, financing, insurance, maintenance and fuel.
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 cents per kilometre. 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 cents per kilometre.
The amount of this benefit is intended to reflect 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 based on capital costs and is also included in the employee's income.
The following limits from 2017 will remain in place 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-territorial 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-territorial 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.
Did you know it's actually less expensive to hire an outside bookkeeper than hiring another employee? It's true!
The Canada Revenue Agency offers E-Services for Businesses, online services to make it faster and easier to handle your company's tax matters. You, your employee, or your representative can file, pay, and access detailed information about your tax accounts - all online, all at your fingertips.
Expenses (BE AWARE)
The CRA does not consider clothing to be a business expense, except,
1) when it is a distinctive uniform that must be worn while carrying out employment duties,
2) when it is special clothing (including safety footwear and safety glasses) designed to protect from hazards associated with the employment
Uniforms such as shirts with the company name on them, can be deducted but not regular work clothes. The rule is that if the clothing is suitable for wear outside of work, even if you only wear it to work, it isn't deductible.
Meals and Entertainment expenses are an area frequently flagged for audit by the Canada Revenue Agency.
The amount you claim must be reasonable and for the purpose of earning Income and not be personal in nature. You can’t deduct things like your grocery bill or lunch just because you run a business, but you can deduct things that relate to your business, such as dinner with a potential client to discuss a business deal.
Personal meals can only be claimed when they relate to business income, such as meals purchased while away on business.
Be ready to explain exactly how your entertainment expenses related to your business income, including a list of who attended the event, what client matter or income it relates to, and contact details to prove who attended.
If you do not have adequate supporting documents, your expenses will be disallowed and your taxable income increased as the burden is on your to support your claim.
March 1, 2018 is the deadline for contributing to an RRSP for the 2017 tax year.
December 31 of the year you turn 71 years of age is the last day you can contribute to your own RRSP. For more information, follow this link. RRSP options at age 71
When to register for GST/HST?
Generally, you do not have to register for GST/HST if your worldwide revenues are $30,000 or less as you are considered a small supplier.
Whether you are required to register or not, you can register voluntarily.
If you choose not to register, you cannot charge GST/HST to your customers and the GST/HST you pay on your business purchases becomes a cost for which you cannot claim ITCs (Input Tax Credits).
There is a different HST rate per province.
Beware of Fraudulent communications
Occasionally, taxpayers may receive,
either by telephone, mail, text message or
email, a fraudulent communication that
claims to be from the Canada Revenue
Agency (CRA). In all these cases, the
communication requests personal
information, such as a social insurance,
credit card, bank account, and/or passport
numbers, from the taxpayer.
These fraudulent communications typically
insist that this personal information is
needed so that the taxpayer can receive a refund or benefit payment. Other communications urge taxpayers to visit a fake CRA website where the taxpayer is then asked to verify their identity by entering personal information. These are SCAMS and taxpayers should NEVER respond to these fraudulent communications, or click on any of the links provided.
To better equip taxpayers to identify those communications that do not come from the CRA, the following general guidelines are provided.
If you have signed up for online mail (available through MyAccount, My Business Account and Represent a Client), the CRA will do the following:
The CRA will send a registration confirmation email to the address provided once an individual or business has registered for the online mail service.
The CRA will also send an email to the address provided to notify you when new online mail is available to view in the CRA’s secure online services portal.
When in doubt, ask yourself the following:
The CRA will continue to post notifications of fraudulent communications as we become aware of them and encourages you to check our Web site should you have concerns.
To see examples of these scams and find out how you can protect yourself, examples of fraudulent communications, and protect yourself against fraud.
If you have responded to a fraudulent communication and have become a victim of fraud, please contact the Royal Canadian Mounted Police's Canadian Anti-Fraud Centre by email at firstname.lastname@example.org or call 1-888-495-8501.
If you have any questions, or comments, please contact us, and we will reply as soon as possible.