Did you start your business while still attending university? Do you drive your own car to conduct business? If you answered “yes” to one or both of these questions, you might be entitled to deductions for student loan interest and mileage. Learning more about tax deductions can help you save money and keep it in your pocket.
Student Loans Interest
If you’re a student and you, or someone related to you, paid interest on a student loan, you may be entitled to a tax deduction. The loan must be from an official government program, either federal or provincial.
For example, loans made under the Canada Student Loans Act are eligible.
Only the student may claim the deduction. In other words, if your parents paid the loan for you, you may still claim the interest deduction, but they cannot.
If you don’t have sufficient income to justify claiming the deduction, keep your documentation, because the deduction for interest on student loans can be carried forward to future years.
Deducting Mileage When You Drive a Personal Vehicle for Business
If you use your car for your business, the Canada Revenue Agency allows you to claim a portion of your vehicle expenses as a business deduction. It’s important to understand all the rules and to track your time behind the wheel carefully so you can maximize your deduction.
Claiming vehicle expenses as business expenses involves a few different steps. To get started, you should note your odometer’s reading. Next, 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 capital cost allowance (CCA) for your vehicle.
Understand the CRA’s Deductions for Business Vehicles
As a small business owner, you don’t report mileage to the Canada Revenue Agency (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.
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.
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.
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 it 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.
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 helps you track mileage and expenses for multiple employees.
If you’re an Uber driver, you’re considered an independent contractor and you can claim your mileage as a business expense. In most cases, the Uber app tracks the kilometres you drive when there is a fare in your car, but for tax purposes, you can also claim the kilometres you drive in between fares or whenever you’re working.
To create an accurate log book by hand, write down the reading on your odometer at the beginning and end of the year. That tracks your overall mileage for the year.
During each shift, write down the odometer’s reading at the beginning and the end. This tracking method lets you figure out which portion of the time you drive your vehicle for work and which portion is for personal use.
If you prefer to use an app, check out an app such as QuickBooks Self-Employed. This app lets you track expenses as well as mileage. To use the distance-tracking portion of the app, turn on the GPS-enabled tracker at the beginning of your shift and turn it off at the end. The app handles the rest.
Xpenditure offers similar tools and also syncs with your QuickBooks accounting software. To reduce your tax liability as an Uber driver, it’s critical to claim all of the kilometres you drive for work. A handwritten log or an app creates proof so you can easily claim mileage on your tax return without forgetting about a single kilometre.
The Steps for Deducting Mileage When You’re Self Employed
In Canada, if you’re self-employed as a sole proprietor or in a partnership, you’re allowed to deduct the miles you drive. However, it is extremely important that you maintain a proper mileage logbook. For each business trip taken, four things must be recorded in the logbook:
- The date
- The destination
- The purpose of the business trip
- The number of kilometres driven
For the tax year 2018, the allowances are:
- 55 cents per kilometre for the first 5,000 kilometres driven
- 49 cents per kilometre driven after the first 5,000 kilometres
In the Northwest Territories, Yukon, and Nunavut, there is an additional 4 cents per kilometre allowed for travel. The Canada Revenue Agency doesn’t consider driving from home to an office as business mileage.
Whether you’re a student starting a small business or you’ve been a small business owner for the past 30 years, you want to keep as much money in your pocket while paying your fair share. Interest on student loans and mileage for using personal vehicles for business aren’t the only available deductions. QuickBooks Online can help you maximize your tax deductions. Keep more of what you earn today.