# proceeds of disposition for vehicle used for business



## joncnca (Jul 12, 2009)

year end re-evaluation time:

if i decide that i will no longer use a car for business, then it will be disposed at fair market value. i must imagine that the proceeds must be included in income somewhere, right? 

let's say i choose to make this change at the end of the year, i'll fill everything out for business use expenses of the vehicle, and at the end of the year, dispose of the vehicle on paper at FMV. i'll claim the business expenses for whatever was used, and there will be an amount for proceeds. is this included as "other income" or is there somewhere more appropriate to put this?

thanks


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## WiseOwl (Jan 1, 2015)

A few questions:

1) Are you self-employed (i.e., you complete a T2125, "Statement of Business Activities", on your personal income tax return), or are you incorporated (i.e., your corporation completes a T2, "Corporate Income Tax Return")?

2) Is the vehicle registered in your name or, if you are incorporated, in your corporation's name?

3) How has the vehicle been previously recorded in your accounting records?


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## joncnca (Jul 12, 2009)

It's a personal vehicle registered to myself. I use it for work and track the km used, and receive a (low) travel allowance from work based on business use km. 

Employer provides a T2200 and I fill out everything needed on my tax return. 

I'm wondering about what happens if I choose to stop claims this tax credit, and don't use car for business anymore. Proceeds from disposition of the vehicle should be counted as income, right? Where do I enter that into my tax return?


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## WiseOwl (Jan 1, 2015)

Thanks for clarifying. This post is a bit long, but I tend to like to encourage people to really dig in and learn about how our income tax system works:

You're not technically operating as a business. Rather, you appear to be an employee incurring employment expenditures to earn employment income. I'm assuming you meet the requirements as your employer provides you with a signed T2200, "Declaration of Conditions of Employment" each year.

If a travel allowance is received from your employer and is based on a per kilometer basis, the allowance is deemed to be reasonable (under section 6(1) of the Income Tax Act). As such, technically speaking the allowance you are receiving is not taxable and no additional travel expenses (under section 8(1)) are deductible by you.

Administratively speaking, CRA will generally permit the deduction of total employment-related travel expenditures where you can demonstrate that your total travel expenses are in excess of the allowance (per Technical Interpretation 2005-0152401E). This is mechanically done by including the travel allowance you received in income and then deducting the actual travel expenditures incurred. The effect of this is that you are getting a deduction for travel expenses incurred above and beyond the travel allowance you received. I am assuming this is what you have probably been doing.

As you own the vehicle personally, there is no disposition to report. If you have been claiming the business-portion of capital cost allowance (CCA) on the vehicle on your T777, "Statement of Employment Expenses" you can however enter the proceeds of disposition for purposes of grinding down and closing out the CCA. I am not sure what tax software you use. If if you are using Profile, you can enter the proceeds of disposition on form T777Auto.

Now, on a personal level, you do have an obligation to report the disposition of personal use property. Vehicles qualify as "Personal-Use-Property" and dispositions should be reported on Schedule 3 of your income tax return. The catch here though is that only a gain would be reported (i.e., if you sold your vehicle for more than its original cost). Losses on the disposition of personal use property are explicitly disallowed. It is rare to sell a vehicle for more than you bought it as vehicles tend to depreciate in value. If this is the case for you, then nothing would need to be reported on Schedule 3.


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## joncnca (Jul 12, 2009)

hi WiseOwl,

Thank you for your thorough and helpful reply.

I've already filled out those forms including the T777, subtracted my travel allowance (from my employer) from the amount eligible for claim.

I'm wondering about this:

If I choose to stop using my vehicle for business, and stop making this claim, I will need to "dispose" of the vehicle for business purposes. it's an older vehicle so it really doesn't depreciate in market value at a rate of 30% per year, even though I'm calculating the CCA at a depreciation of 30% per year. that means that conceivably, at some point, the undepcreciated capital cost (UCC) of the vehicle might be lower than the fair market value if I sold the vehicle (disposed).

In this scenario, wouldn't it be as if I had made money on the car, because i'd already received the tax benefit of claiming the CCA, but on disposition, if the FMV is higher than the UCC, I would need to 'pay back' some of that claim. So in this case, the difference between FMV and UCC is included as income, is it not? Where would I enter this value?

i use ufile but i check everything by hand.

thanks!


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## WiseOwl (Jan 1, 2015)

As you have been claiming CCA, you will need to report the disposition to adjust the UCC pool balance as described in my earlier post. This will affect "Part A - Classes 8 and 10" on the T777 form assuming the vehicle is Class 10. I have never used UFile so am not familiar with how this mechanically done within the program. In Profile it is done on T777Auto which then populates the T777. Perhaps someone familiar with UFile can chime in?

Basically, look for an area in the program around the auto expenses that you can enter proceeds of disposition during the year and if the vehicle is the only asset in your class, make sure you close out the class (in Profile this is done by answering "Yes" to "Is class 10 empty?").


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## Duderoneous (Aug 11, 2015)

Further to this ...
If I dispose of my vehicle at FMV - then class 10 is now empty, because new vehicle is 10.1 (over $30K). I use Profile and when I answer YES to class 10 being empty, it doesn't allow any CCA in the year of disposal, is this correct?


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