As a business owner or professional, you’re probably putting in a lot of kilometres for work, which is why you should be looking into business deductions allowed for vehicle use. Of course, the most significant benefit of being able to write off vehicle expenses during tax season is the savings. However, another thing to consider is that this money saved can go back into the maintenance of the vehicle itself for future resale value.
So now that we’re all on board with writing off vehicle expenses this tax season, how do you go about submitting this deduction?
What Are You Driving Around In?
When it comes to vehicle expenses and the Canadian Revenue Agency (CRA), vehicles are broken down into two groups: motor vehicles and passenger vehicles. A passenger vehicle is any vehicle that’s used primarily for transporting people and has a maximum capacity of no more than eight and a driver. A motor vehicle is any automotive vehicle except for a trolley bus or vehicle designed for rails. While that may sound vague, an example of a motor vehicle might be a van or pick-up truck that’s used mostly for transporting goods/equipment rather than people. The CRA has a helpful chart that explains different types of motor and passenger vehicles.
Do You Own or Are You Leasing?
If you’re paying off a vehicle that you took out a loan for, you can submit some of the interest paid as it relates to the percentage of business use of the vehicle. If you borrowed money to purchase it, you could claim a portion of the interest paid for that loan. The proportion of interest is directly related to the percentage of the vehicle’s use for business.
When leasing a vehicle, you can also deduct the costs of the lease when it was used for business reasons. However, there may be limits and specifics related to vehicle type and purpose. Check out this chart on the CRA website that can help you calculate what you’re allowed to deduct.
A vehicle you own is considered property; therefore, the actual cost of it isn’t eligible for a deduction. You can, however, deduct percentages of the value. This percentage is referred to as depreciation or capital cost allowance (CCA).
Track Your Kilometres/Miles
If you want to write off vehicle expenses, you must keep track of the miles or kilometres driven for business. If you’re looking for a digital tracker, there are many helpful apps for recording vehicle expenses. However, you can also use a physical book in the vehicle to record the odometer readings of business-related travel. Keep these records for at least six years.
Instead of submitting all receipts for maintenance, fuel, and insurance, the CRA offers a standard automobile allowance rate. As of 2019, this rate was $0.58/kilometre for the first 5000 kilometres and $0.52/kilometre after that. There’s an additional allowance of $0.04 if you drive in the Yukon, Northwest Territories or Nunavut. This standard automobile allowance rate is an easy way of claiming vehicle expenses by only tracking the kilometres driven for business use. You can, however, decide to keep all receipts for mechanical costs, insurance, fuel, and other values related to maintaining a vehicle.
How Do You File?
If you’re filing your vehicle expenses on your T1 income tax return as a sole proprietor or partnership, these expenses can be submitted under “Chart A – Motor Vehicle Expenses” or, in the case of a partnership, on line 9943 part 6 of Form T2125. For incorporated businesses, you’ll be using the T2.
Vehicles are an expensive and necessary part of many businesses, and filing these expenses can be confusing. But if you keep accurate records, it can make the filing process far easier at the end of the year. Always be sure that you keep your records in case of a CRA audit.
If you’re looking for help filing your business taxes this year to maximize your savings through deductions, we can help. At Genesa, our team of highly-skilled accountants are here to help your business succeed. Give us a call today and let us help you navigate the confusing roads of business taxes with ease.