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Motor vehicle price for 2125

A client bought a pickup truck in Oct 2016 and the business started in April 2017, almost 6 months later. What price should enter to claim the CCA? How can we calculate the right price of the 6-month-old truck? Is there a table available to find out FMV?

It’s up to your client to provide a reasonable fair market value at the time he started using the truck for business purposes. Just remember to document your conversation with the client when you get the answer. There likely won’t be any table to help you.

You can go to autotrader.ca and get an estimate as well and compare that to what your client is stating

I would use a time adjusted pro-rated depreciation based on the applicable category. I believe in the eyes of the CRA that this is the most defendable approach.

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@msbuttar

Every time you change the use of an asset from individual to business use, you must report the addition based on the Fair Market Value.

Generally, whenever high value, I have the client obtain three quotes, use the median value, and document the reasoning for CRA review support purposes. If low value then I have the client sign a declaration listing the items and values based on his fair value estimate.

Be sure to handle the GST ITC per the CRA rules based on:

  • class
  • % business use

Let’s not forget that form T2057 must be completed for a rollover of personal asset into a corporate entity.

Personally, I find it so much easier to leave a motor vehicle such as this outside of the ‘business’; particularly owner-operator businesses. These vehicles are often used by the owner-operator for personal errands and activities and, unless the vehicle is substantially used for business (greater than 90%), stand-by charges have to be calculated and brought into their personal income. All of this costs $$$ for the client.

Since they have to keep mileage logs anyway, it is just so much easier to claim the business use of a personal vehicle than to add all that other paperwork.

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@cracctg
@msbuttar

I second Randy’s recommendation.

Unless the vehicle is operated more than 90% of the time for business use, I strongly urge the client to leave this vehicle as personally owned and to claim the kms reimbursement per vehicle log.

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I don’t think the original post said this was a corporation running the business. However, if it is a corporation, S85 isn’t required when you’re moving assets into a corporation. It is helpful when the transfer to the company might result in a capital gain or recapture.

I agree, though, that it often makes sense to keep a passenger vehicle out of the company to avoid taxable benefit issues. A truck, though, may meet the conditions to be exempt from the taxable benefit issues.

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@cracctg
@dominique.dabolczi

Thanks Kevin - I was just about to post the same thing. As I understand it, a T2057 is “required” only if you want to transfer assets to a corporation at other than FMV. Has something changed in that regard?

I am guessing Manjinder’s client started a proprietorship in 2017, so S85 would not apply. But, I have a similar scenario - a client bought tattooing equipment in Feb 2019 and set up a corporation in Aug 2019. I discussed several options with the client:

  • have the corp rent the equipment from her personally
  • determine the FMV of similar used equipment and “sell” it to the corp as of incorporation date
  • use S85 - but the shareholder’s tax cost is the original price, so no benefit

I like Klaus’s suggestion. Thanks @etservice1978

Thanks, everyone for your valuable inputs. Yes @Nezzer, its a proprietorship. This is a very good place to clear your doubts and to learn new stuff from each other. Thanks again.