2003 Automobile Deduction Limits and Expense Benefit Rates

In one of this issue's Reality Check items, we addressed the mileage reimbursement rates paid by associations. A related issue is the new mileage rate deduction limits announced by the federal government for 2003.

Other than the three territories, association employees can be reimbursed at the rate of $.42 for the first 5,000 km and $.36 per km  thereafter. At these levels, the reimbursements remain non-taxable.

The new limits and rates announced by the federal government for 2003 are:

• The ceiling on the capital cost of passenger vehicles for capital cost allowance (CAA) purposes will remain at $30,000 (plus applicable federal and provincial sales taxes) for purchases after 2002. This ceiling restricts the cost of a vehicle on which CAA may be claimed for business purposes.

• The limit on deductible leasing costs will remain at $800 per month (plus applicable federal and provincial sales taxes) for leases entered into after 2002. This limit, which ensures that the level of deductions for leased and purchased vehicles is consistent, is one of two restrictions on the deduction of automobile lease payments. A separate restriction prorates deductible lease costs where the value of the vehicle exceeds the capital cost ceiling.

• The limit on the deduction of tax-exempt allowances paid by employers to employees will increase to 42¢ per kilometre for the first 5,000 kilometres driven and 36¢ for each additional kilometre. For the Yukon Territory, Northwest Territories and Nunavut, the tax-exempt allowance will rise to 46¢ for the first 5,000 kilometres driven and 40¢ for each additional kilometre. The allowance amounts reflect the key cost components of owning and operating an automobile, such as depreciation, financing, maintenance and fuel costs.

• The maximum allowable interest deduction for amounts borrowed to purchase an automobile will remain at $300 per month for loans related to vehicles acquired after 2002. This limit reflects the reasonable cost of financing a vehicle for business purposes.

• The general prescribed rate used to determine the taxable benefit relating to the personal portion of automobile operating expenses paid by employers will increase to 17¢ from 16¢ per kilometre. For taxpayers employed principally in selling or leasing automobiles, the prescribed rate will be increased to 14¢ from 13¢ per kilometre. The amount of the benefit reflects the costs of operating an automobile. The additional benefit of having an employer-provided vehicle available for personal use (i.e., the automobile standby charge) is calculated separately and is also included in the employee’s income.

Each year, the federal government reviews these rates and limits annually, and announces any planned changes prior to the end of the calendar year.

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