A few years ago I was travelling through Red Deer, Alta., and stopped at a restaurant for lunch. I couldn’t help but overhear a conversation between a local rancher and a farmer. The rancher was bragging and said: “I can get in my car at six in the morning, drive for six hours, spend an hour eating lunch, drive for another six hours, and I still wouldn't have reached the end of my property.” The rancher smiled proudly as the farmer looked at him in amazement. “Ya, I can sympathize with you,” the farmer replied. “I had a car like that once, too.”
What kind of shape is your car in? More importantly, are you getting any tax relief for the cost of owning and maintaining your vehicle? It’s time for a primer on who can claim automobile expenses, and the type of costs to claim.
Eligibility for a claim
If you use your car in your employment or business you are very likely eligible to claim tax deductions. Specifically, there are three common scenarios where you may be eligible to make a claim: (1) You own a business and use your car in that business, (2) you’re a partner and use your car in the business of the partnership, or (3) you’re an employee and use your own vehicle in your work.
As an employee, you can claim automobile expenses if you meet the following criteria: You’re ordinarily required to work away from your employer’s place of business, you’re required to pay your own automobile costs, you did not receive a tax-free car allowance, and your employer signs Form T2200 (keep this on file in case CRA ever wants to see it).
Let me talk for minute about tax-free allowances from your employer. If your employer pays you an allowance based on kilometres driven and the allowance is considered reasonable, then it’s generally tax-free. In this case, you can’t claim any automobile costs.
But if the allowance is not reasonable (either because it’s too high or too low), then it will be taxable and you will be able to claim automobile expenses. Here’s a tip: If the work-related portion of your automobile expenses is higher than the allowance you’ve received, report the allowance as taxable and deduct your actual expenses. You’ll come out ahead in this case.
If you own an incorporated business, then you’re probably an employee of that corporation, in which case you may be eligible to claim automobile expenses under category (3) above. If your corporation owns the car and it’s used exclusively for business purposes (for example, a vehicle that is used throughout the day by you or your employees and is left on the premises at night), then your corporation will be entitled to claim a deduction for all the costs related to the vehicle, and you don’t need to track your business kilometres separately.
Expenses to claim
You should keep a record of and receipts for all your car expenses, which can include gas, oil changes, repairs and maintenance, car washes, automobile club dues, insurance, and licence and registration fees. You’ll be able to claim the percentage of these costs that represents your work- or business-use. You’ll need to track your business kilometres driven, along with your total kilometres driven in the year. If your business kilometres were, for example, 10,000 kms in the year and your total kilometres driven were 30,000 kms, then you’d be entitled to deduct a third of all these costs.
You’ll also be entitled to claim a portion of your lease costs if you lease the vehicle, or where you own the car you can deduct a portion of any interest costs on a car loan (to a maximum of $300 per month) and capital cost allowance (depreciation on your car, on a maximum value of $30,000 plus GST/HST and provincial sales taxes).
Keeping a log
Make sure you track your kilometres driven for work or business because CRA may ask to see your records. I find that using Googlemaps.com or Mapquest.com is a great way to determine how far you’ve driven for business purposes if you don’t want to jot down your odometer reading every time you drive somewhere for work.