February 2021
The SmallBiz Builder, Vol. 19, No. 2
2021 Automobile Deduction Limits and Expense Benefit Rates for Business
The ceiling on the capital cost of passenger vehicles for capital cost allowance (CCA) purposes remains at $30,000 (plus applicable federal and provincial sales taxes) for non zero-emission vehicles and at $55,000 for eligible zero-emission passenger vehicles. These ceilings restrict the cost of a vehicle on which CCA may be claimed for business purposes.
The limit on deductible leasing costs remains at $800 per month (plus applicable federal and provincial sales taxes). 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 remains unchanged at 59¢ per kilometer for the first 5,000 kilometers driven and 53¢ for each additional kilometer. For the Yukon Territory, Northwest Territories and Nunavut, the tax-exempt allowance is 63¢ for the first 5,000 kilometers driven and 57¢ for each additional kilometer. 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 remains at $300. 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 decrease by 1¢ to 27¢ per kilometer. For taxpayers employed principally in selling or leasing automobiles, the prescribed rate will decrease by 1¢ to 24¢ per kilometer. 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.
2021 Indexation Adjustment for Personal Income Tax and Benefit Amounts
On January 1, 2021, all indexed personal income tax amounts, including tax bracket thresholds and amounts used to calculate non- refundable tax credits, were adjusted by 1%. The Canada Child Benefit and the goods and services tax credit will take effect July 1, 2021.
For 2021 the federal tax bracket thresholds are:
- 15% for taxable income between $0.00 and $49,020;
- 20.5% for taxable income above $49,020;
- 26% for taxable income above $98,040;
- 29% for taxable income above $151,978; and
- 33% for taxable income above $216,511.
RRSP Contribution Deadline
The RRSP Contribution Deadline for the 2020 tax year is Monday March 1, 2021. The annual contribution limit for 2020 is $27 230.
TFSA Limit
The Tax Free Savings Account limit is $6,000 for 2021.
PADGETT BUSINESS SERVICES – WHERE YOUR SUCCESS TAKES ROOT
Padgett Business Services is dedicated to meeting the tax, government compliance, profit & financial reporting and payroll needs of businesses with fewer than 20 employees in the retail and service sector of the economy. This publication suggests general business planning concepts that may be appropriate in certain situations. It is designed to provide complete and accurate information to the reader. However, because of the complexities of the tax law and the necessity of determining whether the material discussed herein is appropriate to your business, it is important you seek advice from your Padgett office before implementing any of the concepts suggested in this newsletter.
