Automobile Expenses

In general, you can deduct expenses you incur to run a motor vehicle you use to earn income from employment or from a business.

Keeping Records

You can deduct motor vehicle expenses only when they are reasonable and supported by receipts. To make sure you receive the full benefit of your claim, keep a record for each vehicle of the total kilometers you drove and the kilometers you drove to earn business income. The record for each trip you take to earn business income should list the date, destination, and purpose, and the number of kilometers you drove. Be sure to write down the odometer reading of each vehicle at the start and end of the year.

If you change motor vehicles during the year, write down the odometer reading of each vehicle at the time you buy, sell, or trade it. Record also the dates of buying, selling, or trading each vehicle.

Note: Capital Cost allowance on a passenger vehicle owned and used exclusively by the business should be claimed as a class 10 or 10.1 asset on the Motor Vehicle schedule.

Automobiles

Canada Revenue Agency's enforcement of the Tax Act as it applies to personal benefits to owners and employees. In particular the benefits related to Automobiles

            Company Owned Automobiles:

                        Company owned or leased vehicles are subject to a standby fee.

These fees are reasonable if you use your vehicle for more than 50% business purposes and you can support it by means of a detailed Log of business use.

Under 50% business use or in the event that a log is not available, the standby fee is quite high. A $32,000 vehicle would have a standby fee of approximately a $7000 benefit to be added to the employee’s T4. This amount would be a benefit every year until the lease is terminated or the vehicle is sold. (Over 50% business use for the same vehicle would be approximately $2500 per year, every year)

            Personally Owned Automobiles:

Method 1 - $0.46 per Kilometer if the employee pays all expenses plus business use insurance and maintains an accurate detailed log. (Calculated and paid to employee at any time with no tax implication to the company or the employee.) This is a qualified expense to the business and not income to the employee.

Method 2 - $0.46 per Kilometer if the employee pays all expenses plus business use insurance and prepares an accurate detailed expense statement at various times throughout the year. This is a qualified expense to the business and not income to the employee

Method 3 - An Automobile Allowance is paid to the employee and the company issues a form 2200 stating it was required for business purposes. The employee adds the allowance to their Taxable Income and claims expenses for business use based on a detailed Log of Km driven for business use. This is a qualified expense to the business and It is Income to the employee

            One solution would be to prepare weekly expense statements on a personally owned vehicle. It is similar to a log and develops a routine and uses a fresh memory to account for any Kms. that were overlooked in your vehicle Log. If a log is not kept, the CRA representative has the authority to choose the highest benefit applicable to this type of employee benefit.

            From the above, you can see that the CRA are becoming more rigid on the Log requirement and in my opinion, you will pay a high price if this issue is not given the attention it requires.

What kind of vehicle do you own?

The kind of vehicle you own can affect the expenses you can deduct. For tax purposes, there are three types of vehicles, each of which has a different definition/description. They are:

Motor Vehicles

Automobiles, and

Passenger Vehicles

If you own or lease a passenger vehicle, there may be a limit on the amounts you can deduct for capital cost allowance, interest and leasing costs.

The following chart will help you determine which sort of vehicle you have.      

Deductible Expenses

The expenses you can deduct include:

·                   Fuel and oil,

·                   Maintenance and repairs,

·                   Insurance,

·                   License and registration fees,

·                   Capital cost allowance

·                   Interest you pay on a loan used to buy the motor vehicle, and

·                   Leasing costs.

Joint Ownership

If you and someone else own or lease a passenger vehicle together, the limits on capital cost allowance, interest, and leasing still apply. As joint owners, the total amount you can deduct cannot be more than the amount that would be allowed if only one person had owned or leased the vehicle.