Vehicles are a tax-deductible asset.
From the CRA’s (Canada Revenue Agency) viewpoint, while it is possible to use your car for business purposes, you must be careful in the claiming of this expense as this is an area that the CRA loves to do a ‘desk audit‘ on. There is a difference between business use and personal use; the business use is deductible for tax while the personal use is not deductible.
The taxpayer must separate the two and if asked the taxpayer must provide a log of the mileage of the vehicle.
What the business owner must do:
You must keep a log of the mileage of the vehicle, this can be accomplished in two ways:
- There are apps that can be downloaded on the smartphone. This is simple to use but requires a subscription and you must remember to swipe the phone to tell the program that it is a business, or a personal trip and it is personal to the person who has the phone i.e. MileIQ or QBO.
- There are GPS monitoring devices that mount on the vehicle. This is very simple to use, and it is a one-time purchase with a small maintenance fee. You will be able to tell the device any time during the trip that it is a business or a personal trip. The device is personal to vehicle i.e. TripLogik.
There are two ways of accounting for the expense of the vehicle.
- A percentage of the total cost of the vehicle.
- At a per kilometer rate, currently $0.70 per kilometer for the first 5000 kms and $0.64 for every kilometer thereafter.
Which is the best?
That depends on the kilometers driven during the year and the cost of the vehicle.
- If the car is driven low kilometers and is of high cost, then it is best to use a percentage of the total costs.
- If the car driven high kilometers, then it is best to use the per kilometer rate.
How much of my vehicle expenses can I write off for business purposes?
The deductible amount is proportional to the percentage of the vehicle’s use that is for business. This requires calculating the business-use portion of total kilometers driven to determine the percentage of vehicle expenses you can deduct.
What types of vehicle expenses are eligible for deductions?
Eligible expenses include fuel, maintenance and repairs, insurance, license and registration fees, capital cost allowance, and lease payments, among others. Documentation and receipts are necessary to claim these deductions.
Can I claim vehicle expenses if I lease rather than own my car?
Yes, the business-use portion of your lease payments is deductible. Note that there are CRA limits to prevent excessive deductions for high-cost or luxury vehicles.
Is there a difference in how vehicle expenses are claimed by sole proprietors/partnerships vs. corporations?
While the principles remain the same, the reporting and implications for personal use differ. Corporations deduct these expenses directly as business expenses, whereas sole proprietors and partnerships report them on personal tax returns.
What happens if I sell my business-use vehicle or it gets involved in an accident?
Tax implications include reporting a capital gain or loss, and insurance proceeds might need to be included in your business income. Maintain detailed records for accurate reporting.
I’m subcontracting for a company (e.g., delivery services). Do these deductions apply to me?
Absolutely. Even if you’re subcontracting and do not see yourself as a traditional business entity, you are providing services in a business capacity. This means you can still claim vehicle expenses related to your business activities. It’s crucial to track your business mileage accurately and separate it from personal use to ensure compliance and maximize your deductions.
Whether you own a business, are a sole proprietor, or subcontract your services, New Heights Accounting is here to help you navigate the tax benefits related to your vehicle expenses. Our expertise ensures that you can claim the maximum deductions allowable while staying compliant with CRA regulations. Contact us today to learn more about how we can assist you in maximizing your vehicle-related deductions.
