As you may or may not be aware, vehicle expenses have a strict policy associated with what is an eligible business expense. Although many of us use a vehicle for our business operations or have a designated company vehicle there are specific guidelines as to what is applicable as an expense to your business. We summarized the scenarios below:
- You Own a Corporation and Your Vehicle is in the Corporation Name
This means the vehicle you drive was bought in your corporation’s name; not your personal name. In this case, if this vehicle is only used for the corporation (ie: you have a separate personal vehicle), the total vehicle expenses may be able to be deducted. Therefore, keep track of all fuel, repairs/maintenance and other expenses associated with the vehicle.
However, if you have a vehicle in your corporation’s name that you use for personal and business use; there must be an adjustment for the personal use. The best and most reliable way would be to track your mileage; specifically, total kilometres driven, how long you travel (km) per business trips and personal trips, and the reason for the business-related trips. From this mileage log, a percentage of personal use will be used to adjust your total vehicle expenses. Therefore, you will need a mileage log (paper or there are also many apps that make this convenient), as well as keeping track of all your vehicle expenses.
- You Own a Corporation and Your Vehicle is in Your Personal Name
This means the vehicle you drive for business was bought in your personal name. This also usually means the vehicle is used for both personal and business activities. Similarly, to the previous point, an adjustment will need to be made as to how much of the vehicle is used for business. However, in this situation, it is required to track just your mileage, not the vehicle expenses. In this case, there is an “automobile allowance rate” that helps calculate the vehicle deduction. The rates for 2019 are $0.58 per kilometre the first 5,000 kilometres driven, then $0.52 per kilometre past that. For 2020 the rates have increased to $0.59 per kilometre for the first 5,000 kilometres, then $0.53 per kilometre after this. Therefore, you will need a mileage log (paper or there are also many apps that make this convenient) and do not need to track any vehicle expenses.
- You are a Contractor or Self-Employed and Use Your Vehicle for Business
If you are a contractor or self employed, you are also able to deduct a portion of vehicle expenses that are for business use. Similarly, to the second point of the first scenario, you would track both mileage and total vehicle expenses. From this information, a reasonable percentage of vehicle expenses used for business could be deducted. Therefore, you will need a mileage log (paper or there are also many apps that make this convenient), as well as keeping track of all your vehicle expenses.
- You are an Employee Who is Permitted by Your Employer to Deduct Vehicle Expenses
In some cases, employers will allow you to keep track of a variety of expenses to deduct from your taxes. Refer to our “How to Maximize Your Tax Return as an Employee” blog for more information on this. Your deduction is determined through the form T777, which has a calculation section for allowable motor vehicle expenses. Per this calculation, it also requires the total kilometres driven, total kilometres for business and total vehicle expenses. Therefore, you will need a mileage log (paper or there are also many apps that make this convenient), as well as keeping track of all your vehicle expenses.
For additional advice, tips and tricks on vehicle expenses and how to take advantage of them, contact us at Jibe!