Many farmers and ranchers have received a letter from the Canada Revenue Agency reviewing their class 10 additions from 2015.
Class 10 is a tax asset pool that allows you to write off your self-propelled equipment, such as trucks, SUVs, tractors, combines, at 30 percent per year. The CRA is reviewing the additions to ensure assets are properly classified, GST was correctly claimed, and to carry out their standard review procedures. The information they require in reviewing Class 10 additions include:
- Receipts for all Class 10 additions in the year.
- GST input tax credits claimed on the additions.
- Copies of insurance and registration for highway vehicles.
- Description of the business use of the vehicle and the percentage that is personal use.
One important aspect of this review is determining whether the highway vehicles used on your farm are Class 10 or Class 10.1, which can have significant tax effects. Class 10.1 was implemented to limit the amount any business owner can write off luxury passenger vehicles.
Generally, you want your vehicles to fall under Class 10 for the best tax results.
If you bought an extended cab truck for $65,000 and it met the rules to be a Class 10 asset, you would be able write off the entire $65,000 purchase at 30 percent per year over the life of the asset. If the extended cab truck is classified as a Class 10.1 asset, you are limited to writing off 30 percent of $30,000, plus sales tax over the life of the asset. Furthermore, you are limited to only claiming GST back on the $30,000 versus the entire GST amount paid.
With less write off and not being able to claim back all the GST, this is a hit to your farm’s cash flow. Therefore, it is important to know when highway vehicles can be classified under Class 10.
The following are tests, if met, which allow your vehicle to be classified under Class 10:
- The vehicle’s seating capacity is three or less (including driver) and it is used more than 50 percent of the time to transport goods and equipment for the farm.
- The vehicle’s seating capacity is more than three but is used more than 90 percent of the time to transport goods, equipment or passengers for the farm in the year of acquisition.
- If you are located at a remote location (at least 30 kilometres from a population of 40,000) then a pick-up truck must be used over 50 percent of the time to transport goods, equipment and passengers for the farm.
The classification of your assets can be tough rules to navigate. It is important to consult with a tax professional to help determine how to appropriately record your purchases and to assist with any reviews you have received from the CRA.
Colin Miller is a chartered accountant and partner with KPMG’s tax practice in Lethbridge. Contact: firstname.lastname@example.org.