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.
There are cellphone based apps, I have used ODOTRACK to keep my log. I now use Telus Drive. It is cellular based and uses GPS to track all my trips. I simply select business or personal for the trip. I can send the trips to my computer and 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 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 2022 are 61¢ per kilometre for the first 5,000 kilometres driven and 55¢ per kilometre driven after that. For 2021 it is 55¢ for the first 5,000 kilometres driven and 53¢ per kilometre driven after that. For 2020 it is 59¢ for the first 5,000 kilometres driven and 53¢ per kilometre 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” 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. For employment expenses a form T2200, Declaration of Conditions of Employment has to be signed by the employer.