Entrepreneurship & Small Business

Help needed to understand how you write off the acquisition of a car (Class 10.1)

  • Last Updated:
  • Jun 12th, 2018 9:38 am
[OP]
Deal Addict
Jun 27, 2015
1172 posts
87 upvotes
East York, ON

Help needed to understand how you write off the acquisition of a car (Class 10.1)

My understanding is that if you buy a car that is above 30K you can depreciate only 30K+HST
Let's say the car was 35K + taxes
30K + GST will me written off over time via the CCA account
What happens with the difference 5K + taxes ? How do I write that off ?
12 replies
[OP]
Deal Addict
Jun 27, 2015
1172 posts
87 upvotes
East York, ON
After doing some reading here is my understanding
you have 0K cash balance
your sales for the year are 100K
you buy 35K of car :-)
Your balance sheet at the end of the year looks like this:
65K cash, 35K fixed assets
you pay taxes for 100K-depreciation for 30K (subject to 1/2 rule in the first year)

the 5K will be an expense but it will never get depreciated...not sure what happens with that amount because you practically write that off right at the beginning
Sr. Member
Nov 12, 2014
656 posts
411 upvotes
Kingston, ON
It's a sunk cost...it's not depreciable since the limit is $30k...you can't expense this anywhere else as it's a capital item you've purchased.
[OP]
Deal Addict
Jun 27, 2015
1172 posts
87 upvotes
East York, ON
QN5252 wrote:
May 30th, 2018 2:47 pm
It's a sunk cost...it's not depreciable since the limit is $30k...you can't expense this anywhere else as it's a capital item you've purchased.
So will it remain on the assets tab for the rest of the life of the company?
What happens when you shut down the company? Will it become you personal income (assuming you get all the money resulted from it)
Sr. Member
Nov 12, 2014
656 posts
411 upvotes
Kingston, ON
Accounting and Tax are two separate things from a balance sheet/assets perspective.

For accounting purposes you can depreciate the entire $35k - for tax you're limited to $30k.
[OP]
Deal Addict
Jun 27, 2015
1172 posts
87 upvotes
East York, ON
thank you ...I will need to read about the above ...
If you don't have the cycles to explain it here I will ask a fried when I meet him (he is accountant in a different country but I guess the idea is basically the same everywhere)

thank you for what you explained so far
Deal Addict
Feb 5, 2009
2772 posts
880 upvotes
Newmarket
Basically it means that your income for accounting purposes will be lower than the taxable income on the tax return, both will be correct.
[OP]
Deal Addict
Jun 27, 2015
1172 posts
87 upvotes
East York, ON
Oh I see so that means that if my company's sales ore 100K for the year and the car cost 35K I will have net income after expenses 65K, but net income before taxes will be 70K (CCA not included in these).
I will continue to work with the 65K balance going forward (this is the accounting side) and depreciate the car as described above.
The taxed amount and the net income will be out of sync just this year (assuming no other things like this have been acquired)
Sr. Member
Mar 3, 2018
832 posts
596 upvotes
GTA
Even for accounting you do not deduct the full cost of $35K from income to get 65K. You take depreciation on the car as an expense. Like 20% of 35K comes to 7K leaving a net income of 93K in your example.
[OP]
Deal Addict
Jun 27, 2015
1172 posts
87 upvotes
East York, ON
DaveTheDude wrote:
Jun 1st, 2018 7:32 am
Even for accounting you do not deduct the full cost of $35K from income to get 65K. You take depreciation on the car as an expense. Like 20% of 35K comes to 7K leaving a net income of 93K in your example.
that is for taxes
For accounting you need to match what you spent (withrawals+cash balance=sales+previous balance) So for this you do count the money you spent for buying the car
what you are saying shows how you calculate your taxes.
Sr. Member
Mar 3, 2018
832 posts
596 upvotes
GTA
CuriousC wrote:
Jun 1st, 2018 1:14 pm
that is for taxes
For accounting you need to match what you spent (withrawals+cash balance=sales+previous balance) So for this you do count the money you spent for buying the car
what you are saying shows how you calculate your taxes.
Actually no. What you described is not your net income for accounting purposes. Sounds like your cash flow statement balance.
Deal Addict
Feb 5, 2009
2772 posts
880 upvotes
Newmarket
CuriousC wrote:
Jun 1st, 2018 1:14 pm
that is for taxes
For accounting you need to match what you spent (withrawals+cash balance=sales+previous balance) So for this you do count the money you spent for buying the car
what you are saying shows how you calculate your taxes.
You should consider hiring accountant.

Your car is set up as capital asset in your books, then depreciated over time using appropriate rate based on your total cost.
For tax there is a limit based on the cost how much can be depreciated.
Those are the differences, not matching what you spend.

For cars there is whole other set of issues to deal with (percentage of business use, who owns the car, potential taxable benefits and so on), but assuming 100% is used for business it is pretty simple as long as you understand the basics.
[OP]
Deal Addict
Jun 27, 2015
1172 posts
87 upvotes
East York, ON
Homerhomer wrote:
Jun 5th, 2018 8:34 am
You should consider hiring accountant.

Your car is set up as capital asset in your books, then depreciated over time using appropriate rate based on your total cost.
For tax there is a limit based on the cost how much can be depreciated.
Those are the differences, not matching what you spend.

For cars there is whole other set of issues to deal with (percentage of business use, who owns the car, potential taxable benefits and so on), but assuming 100% is used for business it is pretty simple as long as you understand the basics.
I would not consider hiring an accountant for this.
I am using TUrboTax for Business and it takes care of most of my needs.
The above question is rather sourced from my curiosity

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