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Changes to Automobile
Deduction Limits & Expense Benefit Rates - 2006
The automobile expense deduction
limits and the prescribed rates for the automobile operating expense
benefit will apply in 2006 as follows:
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The limit on deductible leasing
costs will remain at $800 per month (plus applicable federal and
provincial sales taxes) for leases entered into after 2005. 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.
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The limit on the deduction of
tax-exempt allowances paid by employers to employees using their
personal vehicle for business purposes will increase by 5 cents to
50 cents per kilometre for the first 5,000 kilometres driven and 44
cents for each additional kilometre. For the Northwest Territories,
Yukon and Nunavut, the tax-exempt allowance will rise by 5 cents to
54 cents for the first 5,000 kilometres driven and 48 cents for each
additional kilometre. The allowance amounts reflect the key cost
components of owning and operating an automobile, such as
depreciation, financing, insurance, maintenance and fuel costs.
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The general prescribed rate used
to determine the taxable benefit relating to the personal portion of
automobile operating expenses paid by employers will increase by 2
cents to 22 cents per kilometre. For taxpayers principally in
selling or leasing automobiles, the prescribed rate will be
increased by 2 cents to 19 cents 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.
The Government reviews these rates
and limits annually, and announces any planned changes prior to the end
of the calendar year. This practice ensures that businesses are aware of
the new rates before the beginning of the year in which they apply.
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