How to make the most of work-vehicle expenses on your tax return
Whether you're using your own vehicle or a company car, it's essential to keep detailed records
Some people spend more work hours behind the wheel than behind a desk, but the tax rules governing business-related travel are complex.
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"It's based on driving patterns, it's based on the cost of the vehicle — there's a lot of different factors that come into play," said London, Ont., tax lawyer Don MacDonald of Marcus & Associates.
"Typically what I tell people here is you have to put pencil to paper … do the calculations and figure out what's best in a particular situation."
Whether you drive your own car for work, use a company vehicle or are self-employed, here are some tips for steering your way to the best possible tax return.
Keep a detailed logbook
You're personally responsible for keeping records to support your vehicle expense claims.
You should write down how many kilometres you drive for work, exactly where you're going, the nature of the trip and what expenses you incur along the way.
The more you claim, the more of a stickler the Canada Revenue Agency is likely to be about your records, MacDonald said.
"With the CRA, I've been involved in lots of reassessments where they've gone in and looked at the employees and said, 'You haven't got a proper logbook, so we're just assuming that it's all personal use,'" MacDonald said.
When you drive your own car for work
Whether you're a business owner, a partner or an employee, if you use your personal vehicle for work, you can claim tax deductions so long as you meet the following criteria:
- You're regularly required to work away from the office. If you visit clients or take meetings in other cities, for example, you fit the bill.
- You pay the costs of work-related travel out of pocket. You'll have to get your employer to sign a T2200 form confirming this. If your company reimburses you or pays you a car allowance, you're in a different boat. More on that later.
If both of those apply, you're eligible for deductions related to costs incurred while driving for work, including gas, insurance, registration fees, repairs and general maintenance. You can also claim a percentage of leasing payments or of the capital cost of a car, as well as the interest paid on a loan to buy it.
These deductions depend on your work-to-personal use ratio. For example, if you have $1,000 in car-related expenses and you use your vehicle for work 50 per cent of the time, you can claim $500.
It's worth noting that a commute to and from work does not count as work-related travel.
This all comes back to keeping a detailed log of your driving habits.
When you get paid to to drive your own car
Double-dipping is not OK. If your employer reimburses you for work-related driving expenses or pays you an automobile and motor vehicle allowance, you can't claim vehicle expenses.
But the allowance must be based on a reasonable rate per kilometres driven for it to be considered to be tax-free. For 2016, the CRA considers the following reasonable:
- $0.54 per kilometre for the first 5,000 kilometres driven.
- $0.48 per kilometre driven after that.
- An additional $0.04 per kilometre for travel in the Northwest Territories, Yukon and Nunavut.
A good rule of thumb to follow, said MacDonald, is if your driving costs are higher than your allowance, report the allowance as income and deduct your expenses.
When you drive a company car
If your employer provides you a car, that's considered a taxable benefit. Two ways you might be taxed:
A standby charge: Meant to cover your personal use of a company car, this charge is usually two per cent of the original cost of the car or two-thirds of the lease costs, including PST and GST or HST, for each month of the year you have access to it.
You can get a reduction on this benefit if you prove you're using the car for business more than 50 per cent of the time. If you only use the car for work and leave it at the office at the end of the day, this charge can be waived.
An operating benefit: This reflects the personal portion of any operating expenses paid by your company. It's calculated based on a prescribed amount per-kilometre rate of personal use ($0.26/km for 2016) minus any costs you've reimbursed to the company.
You can bypass this charge completely by reimbursing your employer for all car-related expenses.
When you're self-employed
If you are your own boss, you calculate your expenses the same way as if you drive your own car for work, except you don't have to have an employer sign off on it.
Again, you're expected to keep a detailed logbook and calculate your expenses based on the total kilometres you drove during the year, and the total you drove for business purposes. You can claim deductions for gas, licence fees, insurance or maintenance incurred while driving for work purposes.