June 20, 2018

Vehical Expenses 101 : Deducting Vehicle Expenses from Income

Every client has asked me this  – Can i claim expenses incurred on my Car against my income? Can I reduce my taxes by doing so? What do I need to do to claim Car/Vehicle Expenses?  Well I am going to answer all these questions and more in this blog

I would like to summarize the whole Vehicle Expense answer into this statement :

You can write off your vehicle expenses if used the vehicle for business and if you did, you need to keep track of all vehicle expenses and also keep the relevant receipts.

What Can I deduct in Car expenses ?

  • Gas and oil
  • Repairs and maintenance
  • Insurance
  • Lease costs or depreciation
  • License fees

What is Business Use ? Travelling from office to a client is considered business and vice versa. You can only write off the proportion of expenses used for business purposes. Personal travel is not deductible. To do this, you should keep a kilometer log of your business use.

Can I deduct travel from home to office and vice versa ? Travel from your home to the office is personal and the km’s can’t be counted, similarly, travel from the office to home is also personal. Tip : However, if you drive from home, to a client and then to the office (or vice versa – from the office to a client to home) then the entire trip is considered business.

What do I need to do, to deduct Vehicle Expenses ? To justify your vehicle expenses, you should maintain as accurate a vehicle log as you can – Kilometer Log. The log should detail the date of the trip, the place you are travelling to, the person you are meeting with and the number of kilometers driven between Key points.

What if I don’t keep a Kilometer log?  Then in that case, your actual business use will be scrutinized by an auditor who will more than likely challenge the percentage you have chosen.  Tip : In some cases, CRA has allowed taxpayers to go back and formulate a log (i.e. based on appointments, events, etc.). In other cases some have allowed a test month where a detailed log is kept for a period of time and the period under audit is assessed using that amount.

What records should I maintain to deduct Vehicle Expenses?  –

  • Kilometer log : As mentioned, a kilometer log should be maintained to justify your kilometers
  • Receipts & Bills : For a proprietor/partner, you must keep all of your gas receipts, repairs and maintenance invoices, insurance policies, etc.
  • Proof of Payment : You should also have some sort of “proof of payment” such as Credit Card statements or your bank statement (for debit transactions).

Note: Its not a good idea to pay cash for gas. (we’ve had auditors state  “Anyone can get their hands on a gas receipt and use it as their own”). With the receipt and a statement, you will have no problems.  Typically, we ask clients to use one credit card for all of their business expenses including their vehicle expenses. Make vehicle mileage a part of your monthly expense reports (more to follow on expense reports). Your kilometer log should make sense when compared to your gas receipts and maintenance logs (don’t get carried away by over-claiming the mileage. An audit can easily reveal the true vehicle mileage).

What if I have 2 vehicles that I use for business? You would basically have to do 2 vehicle expense worksheets for the 2 vehicles and do the best you can to allocate the expense among them.Another option is to take the total expenses of both vehicles and then take the total business km’s driven on both cars as a proportion to the total km’s driven on both cars.

Do I have to keep Kilometer log if a vehicle is used 100% for business? You could claim the 100% business use but you still need the log to prove it. In that case all the km on the log would be business so the log would have to prove that.

Can Winter Tires be deducted as an expense? Yes, you could claim the winter tires under Repairs & Maintenance expense.

What if I have leased a vehicle, how much expense can i claim? For leased vehicles, you would be able to claim the lease costs (up to the allowable limit) $800+HST/GST per month. 

What if I have purchased/financed a vehicle, how much expense can i claimIf you have purchased a vehicle for e.g. worth $30,000 for cash, you would claim CCA on the business portion of the vehicle. If the vehicle is financed, in addition to CCA you could also write-off the business portion of the interest expense. The vehicle would either be classified as a Class 10 or 10.1 vehicle depending on what kind of vehicle it is and then depreciated at a rate of 30% per year (with the 1/2 year rule applying in the first year).

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