I have a real estate client who traded in her old vehicle to purchase a new vehicle in 2022. When I started with this client last year, I was only able to take the opening UCC of the vehicle from the last accountant’s tax return. I don’t know the original cost or how much CCA has been taken on it but the old accountant had it in class 10.
How do I properly dispose of the vehicle now? Is the trade in amount the proceeds of disposition? She didn’t have any business Kms driven for the old car at all in 2022 so how do I calculate recapture? Nothing is showing up on her tax return unless I put some 2022 kms for the old car.
“I don’t know the original cost”
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The client knows the original cost - and has all the auto purchase documentation as well - (and for that matter, will have also kept copies of her old tax returns)
Cost less opening UCC must be the total CCA that needs to be recaptured.
Hopefully that is the only asset in that class? (or more questions will have to be followed up)
Sounds like you need to tackle her on business km record keeping as well, or it all sounds personal… (Oil changes etc usually have km recorded by the dealer)
Just so I’m clear, the portion of recapture realized in the business is only based on the KM driven in year of sale? So in this case she traded in the vehicle fairly early in 2022. January is a slow month for realtors so no business KM for this car in 2022. So no recapture? I feel like I’m missing something…
That’s good thinking for your client’s benefit but I’m not sure it would fly with CRA. CRA’s administrative position on calculating business use % of a vehicle allows you to calculate business use for two months that are representative of the year. I don’t think they’d allow your client to base the recaptured income by cherry-picking a dead month to trade their vehicle. I think you’d have to use the % for the year.
I have the same situation with one of my clients. I used the trade-in amount as proceeds. Recapture=(UCC-lower of cost and proceeds) X business use %. For vehicles, proceeds is always lower than the original cost. My client used the vehicle for business in 2022. But if the client did not have business Kms, I don’t know how it can be disposed of. Maybe enter a very low business Kms and dispose of it with a low recapture?
Could one determine that just driving the older vehicle to the dealer, where new vehicle was purchased, might be classified as “necessary business related mileage” ?
(she cannot pursue the business without one).
Related mileage (100%) would effectively calculate and report the recapture (or terminal loss) in T1.
I’m sure the older vehicle did not magically appear on the dealer’s lot.
I am unclear if this is just how taxcycle is calculating it based on the motor vehicle schedule. What @kevin says makes sense in that the recapture (or terminal loss) should be representative to the CCA that was deducted in that particular business over the years and not business use in year of sale. What if they were using the vehicle in a completely different business that year?
I have another situation now and this time it’s resulting in a very clear terminal loss. But my client replaced the old vehicle with a new vehicle in the same class (class 10). I am trying to calculate the immediate expensing of the new car. But does he also realize the terminal loss from the old one? Because there is a new asset in the same class and I can’t remember the nuisances of the rules.