Are you using your personal cars for business purposes and you want to claim motor vehicle expenses? If you used one or more of your cars to earn business income over the last financial period you can claim business mileage on your income tax in Canada. Mileage and taxes go hand in hand, but to claim related motor vehicle expenses, you need to do mileage tracking to substantiate your claim. This is accomplished by keeping an automobile mileage log book for tax deductions or reimbursement. There are three main reasons for tracking mileage:
Minimize Tax Burden
One of the top reasons why you track mileage is to reduce your tax liability. The Canadian Revenue Authority (CRA) must substantiate your claims before they allow your deduction. And this is only possible if you keep records of trips and provide any other evidence that you used your vehicle for business reasons. Logging your vehicle mileage helps you to capture some of the less obvious business-related miles, such as when you stop by the post office on your way home to mail a business letter. Small entries like the one in this example can add up to quite a bit over time as eligible deductible miles, putting money back in your pocket at tax time.
As a small business owner, you must report your business earnings and expenses, and file taxes to the CRA each year. Whether you rely on a mileage tracking app or a paper journal to track your miles, the CRA examines the mileage you’ve claimed as expense deductions. You must provide factual support to prove that the miles you listed were driven for business reasons.
Comparing Revenue Earned With Expenses Incurred
Whether you’re a small business owner or an independent contractor, you need to determine how your business income compares to what you spend. Money you pay for insurance, gas, and other vehicle expenses can count as part of your costs of doing business. Expense tracking is the foundation of solid record-keeping and allows you to monitor the growth of your business and prepare financial statements and tax returns. Beyond the tax ramifications, just knowing where your money goes helps you ascertain whether or not you are staying within your business budget.
What Counts As Deductible Mileage in Canada?
- The CRA allows you to deduct mileage for medical, business, and charity purposes. Here are some examples of what the CRA considers deductible:
- Trips between offices
- Visits and meals with clients
- Business-related entertainment
- Trips for business travel
- Running errands for your business
- Driving to town to buy office supplies
How to Track Your Business Mileage
The CRA requires you to document your business miles to qualify for motor vehicle expense deductions. Finding the method that works for you depends on how you prefer to keep your records. Consider using a mileage-tracking app or mileage log template for tracking and documenting miles. Alternatively, you can use a handwritten log to manually document your miles.
How to Automatically Track Mileage
Mileage tracking with apps offers the best and easiest way to track mileage, because the apps take much of the guesswork out of the process, such as reducing or eliminating handwritten math when composing tax forms, improving your overall accuracy. Unlike handwritten logs and spreadsheets, which are labour-intensive, mileage tracking apps do everything for you.
They save you time and resources by calculating the distance you drive each day for business and summing up your total work-related mileage in a fiscal period. In addition to saving you time, a mileage tracking app is convenient because it works with virtually all devices, from desktops to smartphones, which you can bring with you wherever you go.
How to Calculate Mileage
The CRA offers a formula to calculate your mileage, but first you must keep track of all your car expenses, such as gas, interest and insurance. Next, you need to track both your overall and business kilometres, divide the business kilometres by the overall kilometres, and multiply the figure by all your vehicle expenses to arrive at the amount to claim.
For example, if your vehicle costs were $5,000 for the last financial year, you drove 20,000 kilometres for business purposes using your personal vehicle, and you put 25,000 kilometres on your vehicle overall, then the amount you can pocket during tax time is:
(20,000 business kilometres/25,000 overall kilometres)× $5,000 = $4000
Can You Claim Commuting Mileage?
The CRA needs to verify that all of your mileage deductions are business-related. For example, if you have an office at home and you drive from your home office to your small business, if you’re driving for business, that mileage counts. Always check with the CRA to ensure that you are following the rules accurately for your mileage deductions.
Documentation Needed for Tracking Mileage
Keep and maintain detailed records to show that you’re following the rules for mileage deductions. The CRA expects you to keep a mileage log that contains the following information:
- Your business, commuting, and personal miles
- The business purpose related to the deductible drive
- The mileage (number of kilometres) for each deductible trip
- Dates of your deductible drives, the start location and the destination
Highlights of the QuickBooks Mileage Tracking App
There are many good reasons to track your mileage automatically. One of the best apps for logging your vehicle mileage is the online mileage tracking app available within the QuickBooks Self Employed app. Here’s why you should track your mileage with QuickBooks:
Automatic GPS Tracking Saves Battery Power
When you track mileage with the QuickBooks Self-Employed app, you only need to drive and let the app do the rest, including determining your start point and destination. The app uses your phone’s location to detect where you are and where you go. It tracks all of your vehicle’s mileage without draining your phone’s battery by using patented technology that only uses your phone’s GPS when you’re on the move, ensuring you get reliable data while minimizing power consumption.
Organize Expenses, Save Time and Increase Accuracy
Want to differentiate business trips from personal trips? The app categorizes individual trips, making it easy to track and accurately record potential tax deductions. There’s no need for pen and paper when you use QuickBooks to log your mileage. The app tracks and records mileage data accurately and automatically.
Add a Manual Trip
Did you know that with this app you can easily add a manual trip? It works from your phone or any other mobile device. Simply open the app and tap the Miles tab. Enter your information, including the date, trip purpose, and overall mileage. Then just tap the Save button and you’re all set. You can also export all of your mileage data and expenses and send them to your accountant. You can also add a trip to an invoice reimbursement through the app.
The Bottom Line
Recording your vehicle mileage helps you with tax deductions and it also helps you separate business and personal trips. This comes in handy during auditing, and helps you to determine how much money you spent on business-related travel expenses. Download the QuickBooks Self-Employed app now to automate your mileage tracking while saving time and improving accuracy.
Are you a small business owner who is looking for ways to automate your business processes, such as invoicing and managing bills? 5.6 million customers use QuickBooks. Start tracking your mileage today!