Does my car help me save money on my taxes?
Short answer – It just might! If you own your own business, or have a job that requires you to use a vehicle, there is a good chance keeping records of what you do with your vehicle can help reduce your taxes when you file. Of course, this is based on the requirement that you own or lease a personal vehicle. If you drive a vehicle owned by a business, it might have an opposite effect, but that’s a conversation for another time. There are a few things you’ll need if you want to take advantage of Motor Vehicle Expenses on your tax return:
1. Declaration of Conditions of Employment
The Conditions of Employment is a form that you can request from your employer that details what, if anything, you are required to personally pay to do your job (to us tax people, we know this as a T2200). In this document, there are several sections that can identify whether you were required to travel for work and use your own vehicle. This wouldn’t be useful if you are just driving from home to the office and back. However, if you need to take trips for supplies, meet with customers or vendors, attend conventions or events and they aren’t paying your way, that’s a different story. Even if you are being compensated, you might still be able to claim motor vehicles expenses.
2. Check for an Allowance
The biggest item on the Conditions of Employment is if it indicates whether you were paid an allowance. This is typically found in Section 5, but here it will indicate not only if you got an allowance, but how much and how it is reported. Even if you got an allowance, it might indicate that this was included on your T4 as a taxable benefit. In this case, you will definitely want to claim vehicle expenses because that piece of paper says you are paying tax on that allowance. If there is no allowance, same thing – claim the expenses.
3. Record Keeping
Now that you’ve decided you have the ability to claim vehicle expenses, you will need to make sure you have a record of how you used your vehicle. The most important item here is a LOG BOOK or DAY TIMER. If you don’t have one, get one. It doesn’t need to be fancy, but it does have to indicate 4 D’s: Date (when), Destination (where), Detail (why) and Distance (how far). It will also need to record your odometer reading at the beginning and end of the year. This will allow your accountants (hopefully Zablocki & Associates if you are reading this), to determine the total kilometers you drove in the year, and how many of those were for business. It also serves as support should CRA decide to “randomly select you” for an audit, proving you claimed your expenses accurately.
4. Receipts
So, you’ve established you can claim vehicle expenses, and determined how much you used your vehicle for business. Fantastic! So, how much did you spend? You’ll want to know this and make sure you HAVE RECEIPTS to support this. You can claim basically anything related to your vehicle – your fuel (gas/diesel), your repairs (brakes or rock chip repairs for instance), your maintenance (oil changes, windshield wiper fluid, car washes), vehicle insurance, roadside assistance (emergency kit or AMA membership), license & registration costs, parking (including parking tickets), and the vehicle itself.
If you own the vehicle, a copy of the Bill of Sale and any Loan Agreement will help you determine loan interest and CCA (capital cost allowance). Conversely, if you leased your vehicle, a copy of the Lease Agreement will help you identify the amount of the lease payments…Sorry, speeding tickets are not tax deductible.
5. What to Claim
You’ve got a Conditions of Employment, a Log Book and a ton of receipts that say how much you spent. You are on a roll! Now the question is “what do I claim?” There are two methods to claim based on what you have. The standard method is to claim a percentage of all expenses proportional to the vehicle’s use for work (Business Distance / Total Distance). The calculation can get pretty complex as some items are claimed proportionally, some fully, and some in a declining balance based on a reserve from year-to-year. That might seem like a lot, but it is usually worth it if you use your vehicle for more than 15%. If it is less, say 100 km business out of 10,000 km total for the year, then that’s a lot of work for not much payoff. For the latter, you likely want to use a simplified method. In this case, you can claim the total amount of kilometers for business and multiply by the CRA’s acceptable rate (for 2019, it’s $0.58/km for the first 5,000 km). So that 100 km you drove for work would allow you to claim around $58. You have all this backup, so there is a good chance that if CRA were to question it, that $58 is a reasonable amount, and can save the time of having to figure out 1% of some expenses, plus a more complicated calculation for others.
Good luck on collecting your documentation to help you claim your vehicle on your taxes. If you have questions on this process, don’t forget to give the staff at Zablocki & Associates a quick call or email to ask for clarification!
C. Zablocki