MT and T Tips & Advice

Extended cab pickup trucks are often seen on farms and construction sites. However, while the extra passenger space is useful, most farmers would tell you, that their truck is first and foremost a working vehicle.

CRA Views Extended Cab Trucks as Passenger Vehicles

CRA has tended to disagree and has challenged and reassessed individuals for claims relating to a pickup truck with extended cab.

The challenge is based on the Income Tax Act definition of a pickup truck as a vehicle with seating for 1 to 3 people, including driver. A pickup truck with extended cab and seating for 4 to 9 people is classified as a passenger vehicle.

Passenger Vehicles Provide Fewer Tax Claims

Classifying extended cab trucks as passenger vehicles severely limits the Capital Cost Allowance (CCA), GST Input Tax Credit (ITC), lease and interest costs that may be claimed for tax purposes.

Some Exceptions

However, a pickup truck with extended cab used all or substantially all to transport goods, equipment, or passengers can be classified as a motor vehicle. All or substantially all is typically interpreted by CRA as that it’s used 90% or more for business use. To support this, a comprehensive log of vehicle use is usually required.

Taxable Benefits

If not supported, CRA automatically assumes the vehicle was driven at least 20,000 kilometres per year for personal use. The personal use of the vehicle is considered a taxable benefit and is taxed in the form of a standby charge and operating expense benefit.

Standby charges amount to 2% per month of the original cost of the vehicle or two-thirds the value of the lease payment. On a $40,000 vehicle, the standby charges and operating benefit could be significant. The personal mileage threshold is 20,000 kilometres and reduces the standby charge proportionally for any personal driving that is less than that amount.

Another exception for a pickup truck with extended cab is if it’s used more than 50% for the transportation of goods, equipment or passengers at work sites at least 30 km from the nearest urban center having a population of 40,000. It would then be considered a motor vehicle, not a passenger vehicle.

Case of 2 Farmers and 2 Pickups

In one case, two farmers operating a corporate farm were able to provide detailed, but still general, data about their usage of two corporate-owned extended cab trucks. The trucks were used to haul grain samples to various elevators for grading and pricing and also great distances to obtain replacement parts for equipment.

The judge found their presentation credible enough to stand without a log and they were entitled to have their standby charges reduced accordingly. The judge however, affirmed that the trucks were properly classified as automobiles. In an earlier decision, another judge had ruled the trucks as motor vehicles.

The judge who found the non-log supported case to be credible also agreed with a previous judgment that CRA's interpretation of all or substantially all to mean in excess of 90% might be too limiting. Both of these judges found that 80%, and perhaps even less, might meet the test, leaving another avenue of appeal for vehicle owners who may wish to contest CRA reassessments.

Generally, a detailed log book of vehicle use is the best way to prove your case both with CRA and the tax court.

Should You Collect GST/HST on the Sale of a Vehicle?

When it comes time to sell your truck, the classification, as outlined above, as well as the ownership, dictate whether you should collect GST/HST on the sale price.

For motor vehicles: 

•  <= 50% No GST/HST collection

•  50% Collection on full sale price

For passenger vehicles (individual-owned):

• < 90% No GST/HST collection

• >= 90% Collection on full sale price

For passenger vehicles (corporate-owned):

• <= 50% No GST/HST collection

• 50% Collection on full sale price

- See more at: http://www.fbc.ca/knowledge-centre/change-cra-definition-extended-cab-pickup-passenger-vehicle#sthash.9VIpOmsx.dpuf

Did you know?

Financial literacy means having the knowledge, skills and confidence to make responsible financial decisions at any stage of your life. Everyone can benefit from improved financial literacy, a skill that is fundamental to the social, economic and physical well-being of Canadians. Gain the knowledge and confidence to make responsible financial decisions, from when you land your first job to after you retire. The Canada Revenue Agency (CRA) is proud to participate and to provide the following helpful planning tips.

Important facts

• 35% of Canadians do not have any savings or investments. (Source)
• Over 33% of Canadians find it difficult to keep up with their finances. (Source)
• The 2009 Economic Action Plan established the Task Force on Financial Literacy to better meet objectives for increased financial literacy amongst Canadians, appointing Jane Rooney as Canada’s first Financial Literacy Leader in April 2014.
• In 2013, more than 90 public, private and non-profit organizations held close to 400 workshops and other educational activities to help Canadians improve their financial knowledge and skills during Financial Literacy Month.
• There are a number of free resources and events available for Canadians throughout the month of November to help increase financial awareness and literacy.

Financial Literacy Tips

Save money by opening a Tax Free Savings Account (TFSA) — the TFSA allows Canadians, age 18 and over, to set money aside, tax-free, throughout their lifetime. Each calendar year, you can contribute up to the TFSA dollar limit for the year, plus any unused TFSA contribution room from the previous year, and the amount you withdrew the year before. The annual TFSA dollar limit for 2014 is $5,500. Investing 5-10% of your paycheck into a TFSA can help increase your future savings faster.Open and make regular contributions to a Registered Savings Plan (RSP) — an RSP allows you to save money long-term for:

• Your retirement — Registered Retirement Savings Plan (RRSP)/ Pooled Registered Pension Plan (PRPP))
• Your child’s education — Registered Education Savings Plan (RESP); or
• Disability — Registered Disability Savings Plan (RDSP).

Your contributions to your RRSP/PRPP can give you immediate tax benefits at a time when your income is generally highest and defers taxes to later years when your income is generally lower. The investment income earned in an RSP is not taxed until it is withdrawn allowing it to increase more quickly than it would outside of a RSP. The conditions vary for each savings plan, so learn which one is right for you.

Plan ahead — create a financial plan that includes a budget that keeps track of your income and expenses as well as specific financial goals you want to achieve. Tracking your day-to-day spending can help you identify where you are spending money without even realizing it, and where you can cut back expenses in favour of growing your savings. Include a payment schedule to track your long and short-term financial commitments to ensure that you are always meeting your obligations while maintaining your financial stability. Plan ahead. Be prepared for life’s milestones and curve balls.

Teach children financial literacy with our Tax Resources for Educators — whether they’re your students or your own children, you can start developing their financial literacy skills at a young age. Give your children the foundation they need to make responsible financial decisions throughout their lives by talking to them about money and saving. Have they recently started their first job or post secondary education? Consider helping them learn about their tax obligations and possible benefits with our easy to teach or self-taught programs.

Educate yourself about your financial options — do you know the CRA’s policy for tax corrections? Are you aware of the many types of benefits and credits you may be eligible for? How to create a comprehensive household budget? Taking the time to educate yourself about financial planning, assistance, and options is the best investment you can make for your financial future. Get educated with free financial literacy events this month. It pays to be well informed!

Be realistic — financial stability is measured on a long-term scale, not short-term, so ensure that your lifestyle is sustainable. Be well informed about what you can and can’t afford and live within your means. A suggested emergency savings fund for a household should be able to cover between 3 to 6 months of living expenses in case of unforeseen circumstances. Being realistic, consistent and honest will help prepare you for a more secure financial future.

Take action to solve your money problems — don’t be a victim of your financial situation. Know where you stand, the steps you need to take to get back on track and the options to help you achieve your goals. Not sure where to start? Don’t be afraid to ask for help. The CRA offers assistance in helping individuals plan tax payment options that work for them. Even making one small change is better than none at all — small change adds up.

With more customized options for saving, spending, borrowing and investing than ever before, the CRA is proud to support the Government of Canada’s initiative to help increase Canadians financial knowledge and take advantage of the many positive and long-term benefits of being financially literate. This month offers an opportunity for individuals and families across Canada to strengthen their financial literacy and management skills. There is no time like the present—investing in your financial future is one small investment that will pay off for the rest of your life.

Many people assume that if they fail to include an information slip with their income tax return, the Canada Revenue Agency ("CRA") will simply adjust the return to report the income and adjust the income tax accordingly.This is half correct!The other half of the equation is a little known penalty the CRA imposes for repeated failure to report income. This penalty arises when an income slip is not added in your tax return two times in a three year period.

Several years ago form T 1135 was added to our tax returns for individuals, corporations, partnerships and trusts. It is a simple form that has been often overlooked and non-compliance has been high. More than likely this has been because the form does not enter into the calculation of income tax payable.