What Qualifies as a Farm Vehicle?
According to Manitoba Public Insurance (MPI), a farm vehicle is one that is registered by a person who lives on a farm and who farms for at least 720 cumulative hours in a registration period. This applies to both passenger vehicles as well as all-purpose trucks, however, there are restrictions on passenger vehicles receiving MPI’s farm truck insurance rates which consider the number of days a month and or kilometers a year that can be used for the non-farming activity.
In order to use marked fuel in your truck, your truck must be registered for insurance purposes as a farm truck under the Drivers and Vehicles Act.
For tax purposes, the CRA makes a distinction between passenger vehicles and motor vehicles. Although this does not truly affect the ability to claim expenses incurred by using your vehicle for farming purposes, it can affect the capital cost allowance (CCA) claim you are able to make as a deduction to your taxable income. Whether buying or leasing, a passenger vehicle has a cost limit over which CCA and lease expenses cannot be claimed. Vehicle classification is based on the number of passengers a vehicle can carry in combination with the percent usage for business purposes. When purchasing or leasing a new vehicle, it is always a good idea to check with your accountant to ensure you know the tax rules and ramifications of claiming it as a farm vehicle.
Farm vehicles that have a personal component require the keeping of a logbook to determine the business use versus personal use for tax purposes. There are a number of ways farmers can keep a log of their personal and business mileage either by tracking all mileage or using negative mileage (the tracking of only the lesser percentage use with the greater percentage use being calculated from the starting and ending mileage of the vehicle for the year). This percentage can sometimes be challenged by CRA either on a personal or corporate farm and the lack of a logbook impairs a farmer’s defense of their legitimate business expenses leaving them vulnerable to a reassessment by CRA.
As a firm, we have seen a rise in Class 10 asset reviews. These reviews consist of CRA asking for a list of Class 10 assets (self-propelled machinery and vehicles) that have been added to the corporation along with documentation of any personal portions being claimed on these assets. As assets without proper documentation can be kicked out, it is very important to ensure that any personal use of farm vehicles is being recorded to avoid reassessments, back taxes, and penalties and interest.
If you have any questions on vehicles being used in a farm operation, don’t hesitate to contact on Ag Team for more details.