|Vehicle Expenses for Business Purposes|
Running a vehicle these days is expensive. Just imagine, now you can write off a portion of the vehicle expenses! Even if your business involves you sitting at the computer most of the time, you still need to run out and purchase office supplies, pick up mail from your box office and deposit those cheques!
You must keep track of all business trips made and have backup. Backup can be the receipt for that ream of paper or a note in your daytimer regarding meeting a client. You must keep a vehicle log showing the date, where/why you went and the number of kilometers roundtrip. The trip starts from your place of business / home office, goes to the location of your business transaction and returns to your business / home office. Commute miles may not be claimed as business kilometres. A commute would be from your home to the office.
At the beginning of the year, record the odometer reading for the vehicle. Subtract this reading from last years ending odometer reading to give you the total kilometers you put on the vehicle. Adding up the business vehicle log kilometers gives the business kilometers. Divide the business kilometers by the total kilometers and you have a business use percentage. Apply this percentage to the total expenses for your vehicle and write that amount off against your business income.
Many people object to the mundane task of using a vehicle log (check out Expense Tracker on the Preferred Partners page - you just phone or text in your business trips!). If your vehicle has more than two seats in it, this is the only allowable method to write off your mixed-use vehicle. By mixed-use, it is meant that it is a passenger vehicle (more than two seats) and it is not used solely for business purposes.
If the vehicle you use for business is used solely for your business and is not a passenger vehicle (eg a cube van or a stripped out van for an electrician), than CRA is satisfied that is it is 100% business use. You must still save all receipts regarding it’s operation. It is a good idea to put an exterior and interior photograph of the vehicle with your business receipts each year.
Having a sign or a wrap on the outside of the vehicle does not mean that it automatically is a 100% write off. It just means that you can now write off the cost of that sign. If you walk into an audit and expect to convince an auditor that your van is completely business use without a vehicle log, you will be on the losing side. Get in the habit... its really a way for you to pay yourself.
You should review trips you make on a regular basis for personal use and see if you can convert them into business trips. When you go grocery shopping, can you pick up office supplies at the same time? When picking up the kids from school, can you do a drive-by deposit at the bank? If the trip is combined business and personal, you need to allocate kms to both the personal and business trip, it is not 100% business. You want to increase your business use percentage so that you can claim more of the vehicle expenses, legitimately. If you can get your business use percentage to at least 90%, that is called 'substantive use' and you can 'bonus' yourself up to 100% business use percentage!
In an effort to reduce the red tape burden on business owners, CRA is allowing you to only track your business kilometres for part of a year then extrapolating that percentage to the rest of the year, assuming the business is stable throughout the year. It is not normally recommended for most businesses as your business may not have stable activity throughout the year. You could actually be short changing yourself. If you elect to do this, you have to track your kilometres again at the beginning of the next year anyways. Why not start a good habit today?
Expenses you can write off include
Parking or tolls you incur while on a business trip are claimable at 100%, not at the reduced business use percentage.
You must keep your receipts in good condition. The receipt must be the actual receipt from the place of purchase and clearly indicate what you purchased. A credit card statement showing your purchases at 'Petro Canada' is not sufficient and will be disallowed - how does anyone know you didn't purchase a soft drink and a bag of chips with that gasoline?