# ACB of vehicle purchased years ago



## joncnca (Jul 12, 2009)

if i purchased a vehicle several years ago, and started using it for business in 2013, there's a change in use. let's say the purchase cost me $9000 in 2009, but when i started using it for business in 2013 the fair market value was about $4000, should i record the ACB of $4000 instead of $9000 because $4000 was the FMV at the time of change of use for business? 

i'm trying to put this into ufile and...ironically i think it would have been easier for me to just fill out the paper forms by hand...

thanks


----------



## stardancer (Apr 26, 2009)

Use the FMV for 2013; keep your original paper work, and maybe print stuff off the web showing the black book value and what other vehicles like yours are going for, just to confirm your ACB in case CRA questions it; they probably won't. I have done business returns and not taken CCA because the vehicle is so old.


----------



## joncnca (Jul 12, 2009)

thanks, stardancer.

actually that's something i was thinking about too, and i posted about it in another thread (http://canadianmoneyforum.com/showthread.php/17578-vehicle-expense-(business-use)-theory-behind-CCA)

the problem with CCA that for old cars, the FMV ends up being higher than the UCC...so you lose any real advantage of the tax deduction and end up with a possible capital gain on disposition..

if you claim CCA for a few years, is it possible to stop claiming CCA afterwards without selling the car "in real life"?


----------



## Zeeshanbmerchant (Jan 4, 2014)

joncnca said:


> thanks, stardancer.
> 
> actually that's something i was thinking about too, and i posted about it in another thread (http://canadianmoneyforum.com/showthread.php/17578-vehicle-expense-(business-use)-theory-behind-CCA)
> 
> ...


Yes CCA is optional every year. You can choose to claim it or leave the amount in UCC. 

For example you wouldnt claim CCA if you didnt have the income


----------



## joncnca (Jul 12, 2009)

what happens when if you want to stop using the car for business? is that a terminal loss in the year of disposition? my understanding is that you can't claim CCA that year, and you either have a loss or gain from disposition...but is it possible to physically keep the car but stop using it for business and indicate the proceeds of disposition as the FMV at the time?

in this case, if the UCC has become much lower than FMV due to CCA, then just pay capital gains tax on the difference, and everything is ok?


----------



## stardancer (Apr 26, 2009)

Yes, you can do that, especially if it's an old car; dispose of it for the ucc balance to net a zero gain/loss, which is usually the case anyways. If it's a newer car that would still be on the market, then go with the FMV.


----------



## OptsyEagle (Nov 29, 2009)

In my opinion, the more accurate value is not to go with some arguable fair market value today, but use the depreciated value as the starting point. I believe vehicles are depreciated by 30% per year so I would value it like this:

2009 it was bought for $9,000.

2010 depreciated value = $6,300
2011 depreciated value = $4,410
2012 depreciated value = $3,087
2013 depreciated value = $2,161

If it's business use started in 2013, I would take 30% of $2,161 and then 50% of that since it is the first year of CCA. So your depreciation expense for 2013 would be $324 and the depreciated value to carry forward for 2014 would be $2,161 minus $324 = $1,837.

Your expense amount will always be more in the 2nd year of business/after purchase because they don't force you to only take 50% of the amount, in later years.

Anyway, that is the more accurate way to do it as opposed to just making up some non defendable fair market value.

Just my opinion.


----------



## Zeeshanbmerchant (Jan 4, 2014)

joncnca said:


> what happens when if you want to stop using the car for business? is that a terminal loss in the year of disposition? my understanding is that you can't claim CCA that year, and you either have a loss or gain from disposition...but is it possible to physically keep the car but stop using it for business and indicate the proceeds of disposition as the FMV at the time?
> 
> in this case, if the UCC has become much lower than FMV due to CCA, then just pay capital gains tax on the difference, and everything is ok?


difference is recapture and not a capital gain. Capital gains are half taxable, recapture is same as income for business

Capital gain would occur if you deemed disposition of the car even higher then the original cost


----------



## joncnca (Jul 12, 2009)

OptsyEagle, 

I agree your method is probably more accurate mathematically but i think in reality the annual rate of depreciation varies (though rule of thumb may be 30%) and since the car was already several years old when i bought it, a large part of its depreciation according to the FMV had already occurred. i guess FMV just comes down to what will be considered by CRA to be 'reasonable', no? i might be wrong, but it seemed like FMV was in 2013 for a 2003 honda accord was much higher than $2612, at least people were willing to pay more than that, hence FMV.

Zeehanbmerchant,

you're right, i made a mistake. the recapture goes right into line 104 as other income and taxed at marginal rate.

stardancer,

following on a point i raised earlier, let's say at some point the UCC gets pretty low, lower than FMV and i no longer want to claim business expense on the car. how does this actually work? let's say i need to dispose on paper to get UCC to 0, but i still want to keep the car for personal use...then the disposition value would again be FMV, is that right? i ask because, in this case, i won't actually 'sell' the car to anyone else, i just need to dispose of it, so i guess using FMV is reasonable? and if FMV is above UCC, then i could have a recapture, and that is then added to income, right?

thanks all


----------



## OptsyEagle (Nov 29, 2009)

Well, in my method I am using CRAs depreciation model to derive the valuation. I don't believe they discuss your exact example but since they use 30% a year, on a declining balance, as the rate to depreciate a purchased vehicle, I am sure you will get no argument with my method. It is basically how they want you to do it.

In the FMV method, the argument comes from what is FMV?

Anyway, whatever method you use, I doubt you will be handcuffed and taken off to the jailhouse. I just thought I would throw out what I believe CRA would want you to do.


----------

