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GST/HST Input Tax Credits on Purchase of Vehicles and Aircraft

The amount of input tax credit (ITC) that can be claimed for the purchase of vehicles and aircraft depends on

	cost of the item, and
	type of business entity, and
	percentage of use in commercial activities

There is a maximum capital cost on which an ITC may be claimed for a passenger vehicles. The maximum, excluding GST/HST and provincial sales taxes, is the same as limit for capital cost allowance. This limit applies to all types of business entities. The Department of Finance normally has a news release at the end of December each year to announce capital cost limits for passenger vehicles.

See the Canada Revenue Agency (CRA) table of Vehicle Definitions on our Business page.

a. Corporations and public service bodies, other than financial institutions

Excise Tax Act s. 199(2)

If the vehicle or aircraft is acquired by a corporation for use primarily (more than 50%) in the commercial activities of the registrant, the ITC is 100% of the GST/HST paid, subject to the above capital cost limitation. Otherwise, no ITC may be claimed. The ITC is claimed by the corporation in the GST/HST return for the period in which the acquisition occurred.

b. Partnerships and Individuals

Excise Tax Act s. 202(2), 202(4)

If the vehicle or aircraft is acquired to be used all or substantially all (90% or more) in the commercial activities of the registrant, the ITC is 100% of the GST/HST paid, subject to the above capital cost limitation for passenger vehicles. This ITC would be claimed in the GST/HST return for the period in which the acquisition occurred. The 100% ITC is available even if the vehicle may be made available to an employee for personal use. However, the personal use by the employee will result in a taxable benefit to the employee, which will be subject to GST/HST.

If the use in commercial activities of the registrant is 10% or less, no ITC can be claimed. Otherwise, the ITC is based on the capital cost allowance (CCA) claim for the vehicle at the end of each tax year, except in a year in which the use of the vehicle or aircraft results in a taxable benefit to an employee of the business. In this case, no ITC can be claimed in the year. Once the CCA has been calculated for the vehicle, calculate your ITC as shown in the calculations below.

The calculations are based on the GST or HST rate in effect for your province or territory on the last day of each taxation year. See CRA document GI-038 The 2008 GST/HST Rate Reduction, under the title Purchase of a passenger vehicle for a sole proprietor or partnership for confirmation that the rate on the last day of each taxation year is the appropriate rate to be used.

The formulas such as 5/105, 13/113 and 15/115 are used in the calculation of the input tax credits in order to calculate the ITC on the adjusted cost base excluding GST/HST and PST.

On or after July 1, 2016:

Province/Territory	After Jul 1/16
In a province or territory in which only GST is collected	CCA x 5/105
In a participating province (HST is collected):
- in ON	CCA x 13/113
- in NB, NL, NS & PE	CCA x 15/115

See Sales Tax Rates for rates for each year for each province and territory.

Example: a self-employed person in British Columbia purchases a passenger vehicle in 2009 for $32,000 + 5% GST + 7% PST = $35,840. The vehicle will be used approximately 60% for business use, and 40% for personal use, so the ITC is based on the capital cost allowance for the vehicle at the end of each year. The example below uses 60% business use in each year, where in reality it is not likely the % would be the same in each year, as it is based on actual business mileage (see Trip Log on the Business page).

Note that an individual who is an employee, and receives a tax-free automobile allowance from their employer cannot claim an ITC related to their automobile. The ITC is claimed by the employer.

The CCA rate for passenger vehicles is 30%, and the half-year rule applies, so the CCA for the first year is only 15% of the lesser of $30,000 (2009 limit) or the purchase price, plus tax.

Year 1 (2009 tax year - 5% GST + 7% PST)
Description	ITC
Cost added to CCA class 10.1 (max allowed) = $30,000 + 5% GST + 7% PST (A)	$33,600
CCA (half-year rule) = 15% x $33,600 (B)	$5,040
Business portion @60% x B	$3,024
GST input tax credit year 1 = $3,024 x 5/112 (C)	$135

Year 2 (2010 tax year - 12% HST) ITC based on 12/112 re current year rate
Description	ITC
Beginning UCC = A - B - C (D)	$28,425
CCA = 30% x D (E)	$8,528
Business portion @60% x E	$5,117
HST input tax credit year 2 = $5,117 x 12/112	$548

If the purchaser was a business in Nova Scotia, and paid 13% HST when purchasing a vehicle prior to July 1, 2010, the rate used to calculate the input tax credit for the vehicle, for a year end after July 1, 2010, would be 15/115. For partnerships and individuals in Ontario, the rate for a year end after July 1, 2010 is 13/113.

The input tax credit each year is based upon the GST/HST rate applicable at the end of the year. The cost of the passenger vehicle eligible for an input tax credit is limited to the limitation for capital cost allowance purposes.

Following is a reproduction of the CRA table in GST Memorandum 8-2 outlining ITC entitlements on passenger vehicles and aircraft:

ITC Entitlement on Passenger Vehicles and Aircraft
% of use in commercial activities	General registrants (corporations) and public service bodies	GST/HST registered individuals and partnerships	Financial institutions
≤ 10%	No ITC	No ITC	ITC = actual % of use
> 10% up to 50%	No ITC	CCA based ITC⁽¹⁾	ITC = actual % of use
>50% and < 90%	Full ITC	CCA based ITC⁽¹⁾	ITC = actual % of use
≥ 90%	Full ITC	Full ITC	ITC = actual % of use

Notes:
Re symbols used above:

	≤ means less than or equal to
	> means greater than
	< means less than, and
	≥ means greater than or equal to

(1) except where the use of the passenger vehicle or aircraft results in a taxable benefit under paragraph 6(1)(e) of the Income Tax Act (standby charge).

Canada Revenue Agency (CRA) Resources

Input Tax Credits

RC4022 General Information for GST/HST Registrants

GST/HST Memoranda Series Chapter 8-1, General Eligibility Rules

GST/HST Memoranda Series Chapter 8-2, General Restrictions and Limitations

GST/HST Memoranda Series Chapter 8-3, Calculating Input Tax Credits

Revised: September 20, 2024