Deducting Vehicle Expenses for Work to Minimize Taxes
DEDUCTING VEHICLE EXPENSES FOR WORK TO MINIMIZE TAXES
If you are an employee, you are able to deduct motor vehicle expenses if you meet all of the following conditions:
- You were normally required to work away from your employer’s place of business or in different places.
- Under your contract of employment, you had to pay your own motor vehicle expenses.
- You did not receive a non-taxable allowance for motor vehicle expenses. Generally, an allowance is non-taxable when it is based solely on a reasonable per-kilometre rate.
- You keep with your records a copy of Form T2200, Declaration of Conditions of Employment, which has been completed and signed by your employer.
If I am a self-employed businessperson, what percentage of my vehicle expenses am I able to deduct?
The correct and simple answer is: the actual percentage you use your vehicle for purposes of earning business income. This could mean visiting a client for lunch, travelling to a client’s office, attending off-site meetings, etc.
If your business use portion is questioned, the Canada Revenue Agency (“CRA”) requires individuals to keep a log documenting your actual business use of your vehicle throughout a year. That being said, once you have tracked your business use kilometers for a year, CRA will allow a mileage log to be kept for 3-months per year, so long as it approximates the mileage log that was documented for a full year.
To make things easier we recommend the following:
- Keep small notebook in your vehicle and document the mileage at the start and end of your trip;
- The record for each trip you took to earn employment income should list the date, destination, purpose, and number of kilometres;
- Use one of many apps available for i-phone, Android and Blackberry (we will be testing out several of the apps and will post reviews HERE when available.)
It is also important to keep in mind that there are certain reasonability or logic tests that the CRA will use to determine if the percentage you claim is reasonable. For instance, the allowable portion used for a Real Estate Agent who is constantly travelling from home-to-home and visiting clients, will be much greater than an individual who owns a retail store, where customers come to them.
If you have any questions, we would be grateful for the opportunity to show you what we can do for you and your business!
For more technical specifics, refer to the following information on the CRA website: