Extended cab pick-up trucks are often seen on farms . However, while the extra passenger space is useful, most farmers would tell you their truck is first and foremost a working vehicle.
The Canada Revenue Agency has tended to disagree and has challenged and reassessed individuals for claims relating to a pick-up truck with extended cab.
The challenge is based on the Income Tax Act’s definition of a pick-up truck as a vehicle with seating for one to three people, including driver. A pick-up truck with extended cab and seating for four to nine people is classified as a passenger vehicle.
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Classifying extended cab trucks as passenger vehicles severely limits the capital cost allowance (CCA), GST input tax credit (ITC) and lease and interest costs that may be claimed for tax purposes.
However, a pick-up truck with extended cab that is used “all or substantially all” to transport goods, equipment or passengers can be classified as a motor vehicle. CRA typically interprets “all or substantially all” to mean it’s used 90 percent or more for business.
To support this, a comprehensive log of vehicle use is usually required.
Another exception for a pick-up truck with extended cab is if it’s used more than 50 percent for the transportation of goods, equipment or passengers at work sites at least 30 kilometres from the nearest urban centre having a population of 40,000. It would then be considered a motor vehicle rather than a passenger vehicle.
In one case, two farmers operating a corporate farm were able to provide detailed, but still general, data about their use of two corporate-owned extended cab trucks.
The trucks were used to haul grain samples to elevators for grading and pricing and also great distances to obtain replacement parts for equipment.
The judge found their presentation credible enough to stand without a log and they were entitled to have their standby charges reduced accordingly.
However, the judge affirmed that the trucks were properly classified as automobiles. In an earlier decision, another judge had ruled the trucks to be motor vehicles.
The judge who found the non-log supported case to be credible also agreed with a previous judgment that CRA’s interpretation of “all or substantially all” to mean in excess of 90 percent might be too limiting.
Both of these judges found that 80 percent, and perhaps even less, might meet the test, leaving another avenue of appeal for vehicle owners to contest CRA reassessments.
Generally, a detailed log book of vehicle use is the best way to prove your case, both with CRA and the tax court.
When it comes time to sell, you should collect GST/HST for motor vehicles used more than 50 percent for commercial activities. You don’t need to collect GST/HST if used 50 percent or less for commercial activities.
No GST/HST is collected on the sale of corporate-owned pick-up trucks classified as passenger vehicles if the commercial activity was 50 percent or less.
For anything greater than 50 percent, the corporation must collect GST/HST on the full sale price of the truck.
For individually owned vehicles, no GST/HST is collected on the sale of the truck if the commercial activity was less than 90 percent.
For 90 percent or more, you must collect GST/HST on the full sale price of the truck.
