Dear TPC Financial Group Ltd. clients,
Throughout the year, the CRA will have special projects that will look to target certain expenses claimed by businesses across Canada. One recent project resulted in small business owners having to produce receipts for professional fees claimed on their corporate tax returns. More recently, the CRA has been targeting vehicle expenses, asking for gas, insurance, and maintenance receipts along with a logbook to support mileage amounts. With this in mind, TPC Financial Group Ltd. wanted to outline some important items relating to vehicle expenses to ensure that everyone is aware of recordkeeping requirements.
There are two ways to keep track of the business use of your personal vehicles for CRA.
OPTION 1 (RECOMMENDED)
Keep track of the number of kilometres that you use specifically for business purposes. If you use more than one vehicle, you will need to keep a record for each. To maintain a logbook, make note of each time you use your vehicle for business purposes, listing the date, the starting point, the destination, the purpose, and the number of kilometres that you drive. You can purchase a written logbook from most office supply stores, you can use an Excel spreadsheet, or you can use an app for your smartphone (MileIQ, Mileage Expense Log, TripLog).
At the end of the year, your accountant will claim a vehicle expense based on the CRA’s vehicle rate for the year. Currently, for 2017 it’s $0.54 per kilometre for the first 5000 km and $0.48 per kilometre for all remaining kilometres. Those clients working in the Yukon Northwest Territories and Nunavut are allowed an additional $0.04 per kilometre.
OPTION 2
The second way is based on a percentage of use, and requires more calculations and documentation should you ever receive an audit letter from CRA. Using this method, you will need your odometer reading at the beginning and end of your fiscal year and records need to be kept for each vehicle that you use. Again, keep a logbook for the entire year of each trip you use your vehicle to earn income, listing the date, the starting point, the destination, the purpose and the number of kilometres that you drive.
During the course of the fiscal year, also keep track of all automobile expenses and keep all receipts. At the end of the year, you will calculate the percentage of business use of your personal vehicle by comparing kilometres driven for business purpose and those driven for personal purposes. Once you tally your automobile expenses, use that percentage of the total automobile expenses as your business automobile expense deduction. Give these figures to your bookkeeper or accountant when it is time to do your annual corporate tax return.
ALLOWABLE EXPENSES
Allowable automobile expenses include operating costs such as gas, oil, maintenance, repairs, licensing, insurance and car washes. Interest on automobile loans and automobile leasing costs are permissible but have limits imposed by CRA. Advise your accountant if you have a loan or lease for your vehicle so they can calculate what portion of these expenses you may use.
Mileage associated with driving to and from your place of employment is not an allowable deduction. Automobile tickets and fines are not deductible business expenses at any time. Fees paid for parking for business purposes are not to be included with automobile expenses and are considered a 100% deductible business expense on their own. When parking is for personal reasons, it is not deductible at all.
MOVING FORWARD
After one complete year, CRA will allow small businesses to reduce their logbook recordkeeping. They will permit a three-month sample logbook to extrapolate business use for the entire year. In order to use a simplified logbook, you must have maintained a logbook for one complete year in 2009 or later to establish a base year’s business use of your vehicle, and the business use of your vehicle for the simplified logbook must be within 10% of the results from your base year. You will also have to prove to CRA that the use of the vehicle in the base year remains representative of its normal use. You would give these figures to your bookkeeper or accountant at your yearend so they can calculate your automobile expense for the year.
If you have not kept a log of the business use of your personal vehicle, or if you have not kept the original receipts or digital copies for your automobile expenses, you might consider not using the automobile deduction for your business this year. Once you have kept a logbook for a complete year and have kept all receipts, you would have sufficient documentation to support your deduction for business use of your personal vehicle should CRA request it.
If you have any questions, please do not hesitate to contact your TPC Financial Group advisor.