News and Insights

Department of Finance Announces 2021 Automobile Deduction Limits and Expense Benefit Rates for Business

Tax Development Dec 21, 2020

The Department of Finance announced the automobile expense deduction limits and the prescribed rates for automobile operating expense benefits that will apply for the 2021 taxation year. This year’s announcement contains only one rate change from the prior year. Effective January 1, 2021, the rates will be as follows:

  • The limit on tax-deductible per kilometre allowances paid to employees for using their personal vehicles for business purposes remains the same at 59 cents per kilometre for the first 5,000 kilometres, and 53 cents per kilometre thereafter. The rates are four cents per kilometre higher in the Northwest Territories, Nunavut, and Yukon;
  • The general prescribed rate used to determine the taxable benefit relating to the personal portion of automobile operating costs will decrease by one cent to 27 cents per kilometre. For taxpayers employed principally in the selling or leasing of automobiles, the prescribed rate will also decrease by one cent to 24 cents per kilometre;
  • The capital cost allowance limit for passenger vehicles purchased in 2021 will remain at $30,000, plus applicable federal and provincial sales taxes, and $55,000 for eligible zero-emission passenger vehicles. This results in a maximum allowable input tax credit of $1,500 for GST paid ($3,900 or $4,500 for HST paid at 13% or 15% respectively) for a passenger vehicle acquired in 2021 which is not a zero-emission passenger vehicle; and
  • The limit on deductible leasing costs remains at $800 per month (plus applicable federal and provincial sales taxes) for leases entered into in 2021. Thus, the maximum allowable input tax credit that may be claimed for GST paid in respect of a lease entered into in 2021 is $40 per month for GST paid ($104 or $120 for HST at 13% or 15% respectively). It should be noted that where the leased vehicle’s value exceeds the $30,000 capital cost limit, an additional restriction will further prorate the deductible amount of the lease costs.

Please note that the above limits and rates may be subject to the recapture of input tax credit requirements in Prince Edward Island until March 31, 2021.

The news release may be accessed at the following link: 2021 Automobile Limits