How do I deduct business use of my vehicle? I get this question a lot.
The following covers the basics. For specific situations contact your business advisor, book keeper, accountant, tax planner or tax preparer. They should all know this but, if they don’t call SOS TAXMAN (SOSTAXMAN.COM).
First do you have a proprietorship, a corporation, or is this for employment expenses. If it is a corporation you can use option A or B. For all others option B is your only choice. In all situations you need to have a vehicle log to track usage. Only business use can be deducted.
I personally use ODOTRACK to keep my log. It is cellular based and uses GPS to track all my trips. I simply click business or personal at the start of the trip. Later I log in to enter the purpose of the trip. For example “Airport – Toronto – Padgett Convention” or “met John Doe (potential client) for lunch“ are good. The GPS shows the start and end points of the trip and the kilometers. If I made a mistake and marked a business trip as personal I can log in and change it. It is best to do this weekly or monthly before you forget the reason for the trip.
This is the easiest option and what I do in my office. I own the vehicle pay all expenses personally. I then fill out an employee expense sheet and charge per kilometre for the vehicle use. I use the CRA maximum rates.
The automobile allowance rates for 2013 and 2014 are 54¢ per kilometre (55¢ in 2015) for the first 5,000 kilometres driven and 48¢ per kilometre (49¢ in 2015) driven after that. In the Northwest Territories, Yukon, and Nunavut, there is an additional 4¢ per kilometre allowed for travel.
If my company owned the vehicle and it was available for personal use there would be a problem. You have to use form “RC18 Calculating Automobile Benefits for 2013” to determine the taxable benefits. I find that this taxable benefit can be very high and stays high even when the vehicle ages. For these reasons for most clients it is best to own the passenger vehicle in your own name and charge the corporation for usage. The situation is different for other vehicles such as welding truck that is never used for personal use.
For a typical passenger vehicle I have found the per Km method is the best for most clients. This method results in lower bookkeeping fees and fewer receipts that you need to keep.
This is your only option if you are self-employed or want to claim employment expenses. Again you need to keep a log. You need to keep all vehicle expenses such as, fuel, maintenance and repairs, insurance, registration, and capital cost allowance. The amount that is deductible is the percent of business use determined by dividing business km by total km for the year.
I believe that the average person knows how to spend their money better than the government. For that reason I want everyone to pay the least tax that is legally possible. Instead of voluntarily paying extra taxes so the government can give it to their favourite cause or to subsidize some business that competes with my clients, I prefer to use that money for my family and to give to the charity of my choice.
I have clients that were not doing their taxes or bookkeeping correctly costing them Tens of Thousands of dollars. I corrected these mistakes resulting in refunds of up to $20,000. I am not talking about wealthy people. This is significant money for them. The sad part is there are limits to how many years we can go back to collect these refunds. It is 3 years in most cases and up to a maximum of 10 years in some situations.
A lot of people start a business without a lot of knowledge beyond their area of expertise. This costs them money. Sometimes they will concentrate on the business and not worry about the paperwork. It is easy to justify spending time on finding new clients and getting work done. Doing all the paperwork may not be as exciting or fun. But it needs to be done. I know some people that are months behind in sending out invoices. If you do not invoice on time it can cost you. Customers may not remember what you did and be annoyed at getting a larger bill all at once. Many find it more palatable to receive smaller invoices monthly or weekly. A customer might go bankrupt and you may never collect. This is work you have already completed but did not get paid. Can you afford to work for free? You are losing money you already earned.
If you are not compliant with CRA rules, it could cost you a lot in interest and penalties. The first penalty is bad enough but the next one could be doubled. Repeat offenders can get very high penalties.
If you do not keep the bookkeeping up to date, how do you know if you are making a profit?
If you have several products or services do you know which one is making you the largest profit?
Are you calculating GST correctly? If not you may be paying more than is necessary.
Are you calculating and paying payroll source deductions correctly and on time? Errors and late filing can cost you in penalties and interest.
Presentation Topics we are going to discuss :
- The legal setup of your business.
- Registration with CRA and tax compliance.
- Avoiding Audits
- Avoiding Penalties
- Hiring Employees and Sub Contractors
- Record Keeping
- What are Debits and Credits
- Paying Yourself
- Paying the Least Tax (Tax Planning)
WHEN: Thursday May 14, 2015 8:30 am to 12:30 pm
WHERE: Atlas Business Centre 7633 50 ST Edmonton AB
PRICE: $97.00 plus GST
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