If you use your car for your business, the Canada Revenue Agency allows you to claim a portion of your vehicle expenses as business deductions. It’s important to understand all the rules and to track your time behind the wheel carefully so you can maximize your deduction.
1. Understand the CRA’s Deductions for Business Vehicles
As a small business owner, you don’t report mileage to the CRA. Instead, if you use a vehicle for business, you write off a portion of your expenses based on the amount of time you drive the vehicle for work. For example, if you drive 20,000 kilometres total and 10,000 kilometres are for work, you may report 50% of vehicle expenses as business expenses.
2. Track All Your Expenses
Deductible expenses include license and registration fees, fuel costs, vehicle insurance, monthly lease payments, and interest on car loans. Keep receipts on all of these costs throughout the year; at the end of the year, use the receipts when you’re filing your tax return. For instance, if you have $1,200 in fuel receipts and you drive your vehicle 25% of the time for work, you can claim $300 of fuel as a business expense.
3. Don’t Forget to Claim Capital Cost Allowance
If you own the vehicle you use for work, you can claim the value of that vehicle as part of your capital cost allowance. The amount you can claim varies based on the type of vehicle and other factors. In most cases, you claim a portion of the vehicle’s cost annually and write off the entire value incrementally over time.
4. Use Apps to Track Mileage
Tracking overall mileage for your fiscal year is simple; just make a note of your odometer reading at the beginning and end of the year. Tracking lots of little business trips is a lot more time-intensive. If you like, you can track mileage on a piece of paper or in a spreadsheet, but to make it easier, consider using an app. Apps such as QuickBooks Self-Employed allow you to track mileage by simply turning on the app at the beginning of the drive and switching if off at the end. The app also tracks the destination and lets you add notes about the purposes of the trips so you have all the information you need in case of an audit.
5. Use Allowance Rates to Reimburse Employees
If you require your employees to use their own vehicles for work, you should reimburse them based on the reimbursement rate for your province or territory. For example, as of 2017, the reimbursement rate in the Northwest Territories is 55 cents for the first 5,000 kilometres and 49 cents per kilometre past that point. To track the mileage of multiple employees, consider a mileage tracking app such as Xpenditure. You pay a small monthly fee per user, but it lets you track mileage and expenses for multiple employees. Claiming vehicle expenses as business expenses involves a few different steps. To get started, you should note your odometer’s reading. Then, you need to find an easy-to-use system for tracking the mileage and expenses on each trip. Finally, don’t forget to track all your expenses and claim your CCA for your vehicle.