20 March 1996 Income Tax Severed Letter 953031A - CLASSIFICATION AND CCA ON A MOTORHOME

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

General comments concerning capital cost allowance and interest deductions in respect of a motorhome which will be used for combined business and personal use.

Position TAKEN:

The motorhome is a class 10 asset for CCA purposes. CCA, interest and other operating expenses are deducted on a prorata basis of business miles to total miles.

Reasons FOR POSITION TAKEN:

Quoted applicable paragraphs from IT-521. Also made reference to the 1995 Business and Professional Income Guide.

L. Barrows
XXXXXXXXXX							953031

March 20, 1996

Dear XXXXXXXXXX:

Re: Purchase of a Motorhome

This is in reply to your letters of September 1, 1995 and subsequent follow-up on December 5 concerning the applicable income tax deductions relating to the purchase of a motorhome. We apologize for the delay in replying.

We wish to advise that an advance tax ruling may only be given by this Department when the requirements for a ruling as described in Information Circular 70-6R2 dated September 28, 1990 and the related Special Release dated September 30, 1992 (copy enclosed) have been met. In particular, paragraph 15 of the Circular outlines all relevant documents and information that must be provided for a formal ruling. In addition, since advance rulings are billed hourly based on the time spent, we are unable to provide you with a total estimated cost. Paragraph 18 of the Circular explains, however, that the current fee is $90 plus GST for each hour or part thereof spent on the ruling request and that a deposit of $481.50 is required.

You should also be aware that this Department provides to taxpayers, free of charge, general comments in respect of particular tax implications. In this regard, the following general comments are provided to the questions posed in your letter of September 1. These comments, however, are not binding on this Department.

Our Comments

In our view, motorhomes are designed primarily as recreational vehicles to provide "a home away from home" for persons while travelling on vacation. As a consequence, a motorhome would not qualify for inclusion under either Class 10.1 or Class 16 since it does not constitute an "automobile" within the meaning of subsection 248(1) of the Income Tax Act (the "Act"). It is therefore our opinion that for capital cost allowance ("CCA") purposes the motorhome would be included in Class 10(a) of Schedule II to the Regulations. Since there is no restriction on the amount which may be included in this class for a particular motor vehicle, the capital cost of any addition to the class is equal to its purchase price (including applicable taxes).

Interpretation Bulletin IT-521 (copy enclosed) discusses, among other issues, the restrictions in respect of the deductibility of CCA and interest relating to personal and business uses. The method normally used to determine the deductible portion of CCA and interest expense on borrowed money is to include the total of these amounts with the full amount of other operating expenses (ie., fuel, maintenance, repairs, etc.) pertaining to the vehicle. The amount deductible is normally that portion of the aggregate of these items that the distance travelled by the vehicle to earn the business income is of the total distance travelled by the vehicle in the year (see paragraphs 4 to 8 of IT-521).

With regard to CCA, there is a second method which may be used. It involves calculating the CCA on that portion of the capital cost of the vehicle that the total business use is of the total use with the CCA being claimed separately. This method is acceptable only if the portion of the capital cost on which the allowance is calculated is about equal to what the business portion would be using the portioning methods described above. In addition, since only the business portion is included in the capital cost of the class, any increase or decrease to the business portion must be added to or deducted from the capital cost, as the case may be, pursuant to paragraph 13(7)(d) of the Act (see paragraph 15 of IT-521).

Subsection 1100(2) of the Regulations provides that only one-half of the amount of CCA otherwise allowable may be deducted in the year of acquisition.

Subsection 13(7.1) of the Act deems the capital cost of depreciable property to a taxpayer to be its cost less amounts received such as government assistance in respect of that property. The GST input tax credit ("ITC") is considered government assistance and, depending on the amount of any ITC, the property's capital cost for CCA purposes should be reduced by that amount (see chapter 4 of the 1995 Business and Professional Income Guide; specifically, the third paragraph under the heading "Column 2 - Undepreciated capital cost (UCC) at the start of the year" page 26.)

We are unable to comment further on the ITC treatment and have therefore forwarded copies of your correspondence to GST Rulings and Interpretations. They will correspond directly with you in this matter. In the meantime, we have included for your information a copy of the Guide to the GST Tax Return for Registrants.

We trust these comments will be of assistance.

Yours truly,

R. Albert
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

Enclosures