Year-End Tax Tip: Time to Buy a New Car?

Evelyn Jacks

Should you buy a new car before year end to reduce your 2020 taxes?  It’s a good question especially because lucrative new tax rules were put into place for the write-off of most capital assets* on November 21, 2018.  Taxpayers can in fact, triple up on the usual first-year tax deductions when they acquire assets in the period between November 20, 2018, and December 31, 2023, and put them into use before 2028.  

Prior to this, taxpayers were restricted to “half-year rules” in the year they acquired an asset.  This allowed for only 50% of the normal CCA claim in that year.  For example, if the normal CCA rate was 30%, only 15% was allowed in the first year.   However, under the new accelerated rules, the allowable first-year claim is 150% of the normal CCA claim, for assets that would otherwise be subject to the “half-year rules.”   These enhanced write-offs can only be used in the first tax year the property is available for use in the business.

For purchases in years 2024 to 2027, the half-year rule will be again be suspended, and a claim of the normal CCA rate will be allowed; in other words, the full year of CCA will be allowed in the first year. In the case of eligible property that would not be subject to the half-year rule, the enhanced CCA in the phase-out period will be 125% of the normal first-year allowance. 

For purchases after 2027, the pre-November 2018 rules will apply; that is, the normal half-year rules will again apply.  Fortunately, computer tax software computes it all automatically.

Yet, from a planning perspective, there are a couple of catches to be aware of.  First, neither the taxpayer or a “non-arm’s length person” can have previously owned or acquired the property. 

Second, the property must not have been transferred to the taxpayer on a tax-deferred rollover basis.  In these cases, the property will not qualify for the fast write-offs. 

For these reasons, it’s important to speak to a DFA-Tax Services Specialist™ before acquiring a property or transferring it from personal to business use.

Excerpted from Make Sure It’s Deductible, 2020 edition, by Evelyn Jacks, now available.

You earned it, now keep it! Maximize your profits by getting the most out of every tax deduction.

No matter what kind of small business you have, you owe it to yourself to take advantage of every legitimate business deduction and personal tax planning advantage at tax time. In the newly updated fifth edition of Make Sure It’s Deductible, Evelyn Jacks, Canada’s bestselling and most trusted tax author and educator, delivers vital tax facts that will save you money—presented in a clear, friendly style that’s easy to read, understand and apply to your own business.

Join the more than 40,000 entrepreneurs who’ve turned to this tax-saving classic to learn about:

• What expenditures are fully deductible and which are restricted
• How to claim expenses under new auto and home office rules
• Hiring family members and splitting income to keep more of your money
• Building significant wealth with the capital gains deduction and savvy income re-investment strategies
• Planning for a secure lifestyle now and in retirement

Make Sure It’s Deductible provides vital, practical information you need to increase your bottom line and run a tax-efficient and audit-proof small business.

“Evelyn Jacks is well-deserving other reputation as Canada’s most trusted tax advisor. This book could save thousands of tax dollars for anyone who is self-employed, runs a small business, or is thinking of starting one.”—Gordon Pape, bestselling author and editor and publisher of The Internet Wealth Builder.

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