2012 automobile deduction limits and expense benefit rates

When an automobile is used for business purposes, the Income Tax Act allows for a deduction of the automobile’s related expenses, subject to certain restrictions or limits. The 2012 deduction limits and expense benefit rates were recently announced, as follows:

• The ceiling on the tax cost of a passenger vehicle for capital cost allowance (tax depreciation) purposes will remain at $30,000 (plus applicable federal and provincial sales taxes) for purchases after 2011.
• The limit on deductible leasing costs will remain at $800 per month (plus applicable federal and provincial sales taxes) for leases entered into after 2011.
• 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 2011.
• The maximum amount that employers can claim as a deduction for tax purposes with respect to tax-exempt vehicle allowances paid to employees who use their personal vehicle for business purposes will increase by $0.01—to $0.53 per kilometre for the first 5,000 kilometres driven and to $0.47 for each additional kilometre. The allowance is intended to reflect the key cost components of owning and operating an automobile, such as depreciation, financing, insurance, maintenance and fuel costs.
• Employees who are provided with an employer-owned (or leased) vehicle for their personal use must report a taxable benefit which is comprised of two parts: a “standby charge” which reflects their personal access to the vehicle; and an “operating benefit”, which reflects the personal portion of operating expenses paid by the employer. The operating benefit is generally calculated by applying a prescribed amount per kilometre of personal use. The general prescribed rate used to determine this benefit will increase by $0.02 to $0.26 per kilometre. For taxpayers employed principally in selling or leasing automobiles, the prescribed rate will increase by $0.02 to $0.23 per kilometre.