Our mini-van has served us well over the years – but it's old now. Truthfully, the van has been Carolyn's vehicle. The Maserati is mine. Oh, she doesn't complain. In fact, she has appreciated the practicality of the van, given our kids' activities over the years.
But, we now need to replace the van. The good news? Carolyn is able to deduct part of her vehicle costs, and I'd like her to maximize those deductions.
"Carolyn, we can really ramp up the tax savings if we buy the right car," I said, showing her a picture of a vehicle for sale online.
"Tim, that's a hearse," she said.
"So what?" I replied. "We'll save an extra $1,500 in tax this year, and it holds five hockey bags."
We're still discussing it.
Today, I want to talk about some nuances when it comes to claiming vehicle costs. These tips could save you thousands of dollars over time.
Who can claim a deduction for costs related to a vehicle? Three categories of people: a business owner who uses his own vehicle in the business, a partner using his own vehicle in the partnership's business, or an employee required to use his own vehicle in his work (employees will need a Form T2200 signed by the employer).
In these categories, you'll be entitled to deduct a portion of all kinds of costs, including gas, maintenance, repairs, insurance, auto club dues, license and registration fees, capital cost allowance (CCA – which is depreciation for tax purposes), interest on your car loan and lease costs.
There are some limits on these last three deductions. As for CCA, you can only claim depreciation on the first $30,000 (plus GST and PST) of the cost of your vehicle. Further, the deduction for loan interest is generally limited to $300 per month for the year, and there will be a restriction on lease costs so that you're really only deducting the portion of the lease payments that relate to the first $30,000 (plus GST and PST) of the cost.
Business or personal
You can claim the costs I've mentioned to the extent you used your vehicle for business purposes. You'll have to track your kilometres driven for both personal and work purposes to calculate the deductible portion of your costs. If you use your car, say, 60 per cent for work or business, then 60 per cent of your costs would be deductible.
Driving from home to work or back again is considered personal use of the vehicle (sorry about that). The good news is that business travel includes travel from home to a client's and home again; travel from home to a client's and then to your work; or from your work to a client's and then home. So, maximize your business use of your car, and your deductions, by arranging to visit clients or customers on the way to or from work.
Types of vehicles
Most types of vehicles can give rises to deductions. It could be a car, van, bus, pickup truck or other truck, for example. Some vehicles will escape the limitations for CCA, interest or lease payments that I talked about. Those limitations only apply to passenger vehicles (typically those designed to carry at most a driver and eight passengers). Certain vehicles are excluded from the category, including taxis, ambulances, hearses (note to my wife: big tax savings, dear), and buses. The same exclusion can apply to vans and pickup trucks if they seat no more than the driver plus two passengers and are used primarily for transporting goods or equipment, or are used more than 90 per cent for transporting goods, equipment or passengers. Some other, less common, exclusions can also apply.
When tracking personal and business kilometres, note your odometer reading at the start and end of each year. Try to track your business kilometres each time on your drive for work. Keep in mind that Google Maps can be a big help if you know where you traveled and when, but forgot to note your odometer reading. Also, you'll save more tax if you use your higher-maintenance vehicle in your work. Finally, try to drive only one vehicle for work, which will maximize your business use and your deductions.
Tim Cestnick is president of WaterStreet Family Offices and the author of several tax and personal finance books.