Do you charge depreciation and vehicle-related expenses to your business? The BIR has introduced Stricter Vehicle Depreciation Rules, which impose new limitations on the depreciation and deduction of company vehicles. These changes affect businesses that rely on vehicles for operations, making it crucial to review compliance with the updated regulations.
Under the Stricter Vehicle Depreciation Rules, not all company vehicles—whether for land, sea, or air transport—can be depreciated and deducted from gross income. The BIR aims to ensure that only vehicles used strictly for business purposes qualify for tax deductions, preventing potential misuse of depreciation claims.
With these Stricter Vehicle Depreciation Rules, businesses must carefully assess which vehicle-related expenses remain deductible. Understanding these changes can help avoid compliance issues and unexpected tax liabilities. Consult a tax professional to navigate these stricter regulations effectively.
In claiming depreciation expense, the taxpayer must substantiate the purchase of the vehicle with sufficient evidence such as official receipts or other adequate records containing registrable identification number of the vehicle, its total price subject to depreciation and must prove the direct connection or relation of the vehicle to the development, management, operation or conduct of the business. Further, only one vehicle for land transport, which value should not exceed Php 2.4M, is allowed for use of an official or employee.
Under the Stricter Vehicle Depreciation Rules, yachts, helicopters, airplanes, and aircraft can no longer be depreciated unless the primary business activity involves transportation or leasing, and the vehicles are directly used in operations. Furthermore, any maintenance expenses incurred for these non-depreciable vehicles are disallowed, along with the input VAT related to such expenses. These changes aim to prevent the misuse of depreciation benefits and ensure that only vehicles essential to business operations qualify for tax deductions.
If you need tax advice or review of your tax matters to ensure that you are claiming the proper expenses on your income, contact Triple i Consulting.
