Can a restored advertising vehicle be claimed as a corporate tax deduction?
By Gord Ahier | July 21, 2009
I own a construction management consulting business and I'm thinking of restoring a vehicle to use as an advertising/promotions vehicle. Would the cost of the parts, labour, etc., for the restoration be a corporate tax deduction?
Gord Ahier answered:
There are two tests that need to be satisfied to allow you to be able to claim the expenses as a deduction on the corporate tax filing.
Firstly, the expense must be laid out to earn income. In other words there must be a clear relationship between the expense and the income earning process. For most items, this relationship is clear.
In the situation outlined, there is a real question whether this test would be satisfied. It is one thing if a work vehicle was being restored. It is another matter if the vehicle restoration is primarily a personal interest of the shareholder that will have some promotional benefit to the corporation.
Since this is a question of degree, you will need to consider the motives behind the decision and the relationship the vehicle has to the income earning process of the construction management business.
Assuming the expense was laid out to earn income, the second test that must be applied is whether the expense was capital in nature. If it is capital in nature, the costs will be added to the cost of the vehicle and claimed through the capital cost allowance deduction over future years.
Costs to restore an item to the original state the vehicle was in when you acquired it are normally claimed as an expense in the year incurred. When you acquire a vehicle that you need to then restore, those costs are capital in nature and would not be claimed as an expense in the year incurred.
In your specific situation, it appears that you have acquired a classic vehicle that will need to be restored. Assuming there was only a business motive driving the decision, the cost will likely need to be added to the Class 10 pool on the capital cost allowance schedule of your corporate tax return and claimed at 30 per cent a year.