Episode 3: Vehicle Expenses 101
Updated: Jan 15, 2020
In episode 3, we kept up with our Frequently Asked Questions theme and talking about vehicle expenses. Just like the working from home expenses, there are categories of people that will use their vehicle for work-related activities.
1. Self-employed people, whether it’s a sole proprietor or shareholder in a corporation (including landlords, uber/taxi drivers, and truckers who use their own truck)
2. Employees who are required to drive for work (T2200 form required)
Regardless of what category you fall into, if you are using your vehicle any less than 100% of the time for work, you need to keep a kilometer log! No matter how tedious it is, this is extremely important if you want to make a claim for your vehicle usage.
How to Keep a Mileage Log
This episode was focused on keeping a manual log (pen & paper, excel, template), but there are apps out there that can work quite well to cut out some of the work for you – check out MileIQ or Hurdlr - but any method you prefer will work as long as it contains all of the required information.
Record beginning of year and ending of year odometer reading – this is going to tell us the TOTAL amount of kilometers driven in the year. This is important, so make sure you are setting a reminder for yourself on January 1st of each year (or the first day of your fiscal year if you are completing a km log for a corporation). This means you do NOT need to track personal trips.
THEN, for every single work-related trip, record the following:
• the date;
• the starting address (not from home unless that’s your main workplace);
• the destination address (if the destination doesn’t have a street address, use the GPS coordinates. You need to be very specific with this);
• the purpose of your trip (this can be fairly general if you’re concerned about privacy issues); AND
• the kilometers driven for that trip (If it’s a simple round trip, you can note that, and double the kms)
At the end of the year, we add up all of the work-related trip kilometers, divide it by your total kilometers (which includes personal), and that gives us our percentage of work-use.
WORK RELATED KMS/TOTAL KMS
Example: 1,500 work kms/10,000 total = 15% business use
If you use more than one vehicle, or you trade a vehicle in the year, start a new km log for that vehicle – and don’t forget your beginning odometer and ending for the new one!
Once you’ve done this perfectly for an entire year (we call this a BASE YEAR), CRA does allow a simplified 3-month forecast – what this means is if you do the first 3 months of the new year, and it’s usage is within 10% range of the BASE year, you can discontinue the logging and use a special formula to calculate your current-year mileage.
What is considered a work-related trip?
1. For BUSINESSES, whether you’re a sole proprietor or a shareholder in a corporation, the definition of a business-related trip is pretty broad, especially if your main work space is your home. If it’s NOT your home, meaning you lease an office or other space, traveling to and from home is not considered a business trip.
2. If you are a LANDLORD, there are special rules. If you own 1 rental property only, you can only use trips that are relating to maintenance or repairs of the property, but you are NOT allowed to claim trips to collect rent or for general property management. If you own 2 different SITES (not 2 units in the same building), you can claim rent pick-up and general property management trips (inspections, laundry coin removable).
3. EMPLOYEES: Unless your main place of work is home (and you would need your T2200 form to outline that), do not include any trips that start or end at your home address.
Now we know how to fill out the km log, and we’ve arrived at our allowable percentage. What expenses can we apply that percentage to?
For all categories of taxpayers, the following deductions may be made (keep ALL receipts – for tips on how to organize/keep these receipts, see episode 1):
• Gas, oil, windshield washer fluid
• Car washes
• Repairs & Maintenance
• Insurance & AMA coverage
• License & registration (not tickets or fines)
• Business-related Parking is 100% deductible
• Loan interest (up to a max of $3,650 per year)
For leasing costs and deprecation expense (aka wear and tear: claiming the de-valuation of the vehicle over a period of multiple years), the amount you can claim actually depends on what type of vehicle you have. CRA has 2 categories for vehicle types:
1. Passenger Vehicle – this will be most of you, and this is the category that has more restrictions on what can be claimed. If your vehicle is a car (vs a truck, SUV, or van), and you don't use your vehicle primarily to transport fare-paying passengers or goods/equipment, you have a passenger vehicle.
2. Motor Vehicle - Fare-charging taxis or ubers, or a vehicle you use to transport goods/equipment
• 1-3 passenger pick-up truck or van used to carry goods/equipment with at least 50% biz use
• 4-9 passenger pick-up truck, SUV or van used to carry goods/equipment OR passengers with at least 90% biz use
If you own a passenger vehicle, your leasing costs and depreciation costs are limited to $30,000 + sales tax TOTAL over the entire leasing or ownership period, so even if your vehicle costs more than $30K + tax, that’s all you can claim.
If you own a motor vehicle as per the definition, there aren’t limits to the amount you can claim for leasing costs and depreciation.
There can be more complex issues if your employer is paying you a non-taxable allowance, or you are driving a company vehicle and they are reporting the personal use part of your vehicle as a taxable benefit to you. You can still follow the advice that I’ve given in regards to keeping a km log and what receipts to keep, but I also suggest that you speak with a tax professional about your individual case before making a claim on your tax return.
Some areas of this episode can be expanded on, but I wanted to keep the information on a 101 level. If you have any questions, I would be happy to answer them, so don’t be afraid to reach out.