# vehicle expense (business use), theory behind CCA



## joncnca (Jul 12, 2009)

i've been thinking about the calculation of CCA and how it relates to the value of a vehicle over time.

the maximum depreciation for a class 10 asset is 30%. let's say you claim 30% every year, but you bought a used vehicle for $25,000 that originally went for much more (e.g. $50,000). in this case, a lot of the depreciation has already happened, and over the next years, the decrease in market price will be slower then 30% per year. nevertheless, you can claim 30% in the CCA calculation because the asset class doesn't differentiate between cars (new or used, depreciated or not), it's only based on purchase price.

this means that potentially for a car that's already depreciated a lot when you bought it, the undepreciated capital cost (UCC) can decrease at a faster rate than the market value, right?

the only way this gets put back in balance (correct me if i'm wrong) is that when you go to sell the car, the proceeds from disposition may be higher (market value) than the UCC, and you include this into income, effectively requiring you to pay back some of the taxes that you got a deduction for by claiming CCA, because the market value didn't decrease as fast as UCC.

does this sound right? is this how it works? it seems like market value and UCC are two related but different entities. market value is what you can actually get if you sold the car. and UCC is a theoretical value that's calculated for the purposes of taxes, and has no "real world" importance to, say, someone buying your car. yeah?

furthermore, this means it's not worthwhile to keep a car for business use for too long if you continue to claim CCA, if the UCC drops significantly below the market price, as you might get higher proceeds from disposition, and possibly have to pay tax on the proceeds?


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## fraser (May 15, 2010)

I used to transfer the car to my wife at class 10 (?) depreciated value. Never had a problem with CRA. But I kept the car for about 5 0r 6 years and then transferred it. Of course, I made certain that all of the repairs were done, and the tires in good condition prior to moving it over. CRA probably did not care as much because I was only claiming about 50 percent for business use. My auto expenses were desk audited twice by CRA...no issue.


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## MoneyGal (Apr 24, 2009)

joncnca said:


> it seems like market value and UCC are two related but different entities. market value is what you can actually get if you sold the car. and UCC is a theoretical value that's calculated for the purposes of taxes, and has no "real world" importance to, say, someone buying your car. yeah?


Capital cost allowance is a tax concept only, set by CRA without reference to by how much capital properties "really" depreciate over time.


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## Zeeshanbmerchant (Jan 4, 2014)

CLaiming CCA is optional


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## joncnca (Jul 12, 2009)

fraser said:


> I used to transfer the car to my wife at class 10 (?) depreciated value. Never had a problem with CRA. But I kept the car for about 5 0r 6 years and then transferred it. Of course, I made certain that all of the repairs were done, and the tires in good condition prior to moving it over. CRA probably did not care as much because I was only claiming about 50 percent for business use. My auto expenses were desk audited twice by CRA...no issue.


that's interesting. when you say 'transfer' do you mean you actually sell the car to your wife? wouldn't this require you to sell at roughly market value, and pay sales tax on registration? after 5 years, the car is worth only about 16% of its original value, which i'm sure is lower than market value, which means you'd have a recapture, which you need to add to income and pay tax on, right? or is there some way to transfer without 'selling'?


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