If you are required by your terms of employment to use your own vehicle and your employer does not provide a non-taxable allowance based on the number of kilometres drive, then you may deduct a portion of your automobile expenses from your income from employment. In order to make a claim, you must file a T2200 Declaration of Conditions of Employment, signed by your employer, with your tax return.
Business related operating costs such as fuel, maintenance, insurance, automobile club expenses, lease costs or interest (with limits), may be deducted in proportion to the number of business kilometres driven in the year.
If you are involved in an accident while using your vehicle for business then the full amount of the repair expenses less any insurance processes are fully deductible.
Tip: Keep a log book to record your use of the automobile as well as receipts. The log must record the total distance driven and the distance driven for work related use. The log must show:
- Total number of kilometres driven
- Total business kilometres for the year
The log can be an official trip log kept in your car or recorded in your appointment calendar. Choose what works best for you.
Capital Cost, Interest, and Lease Payments
If you purchase your vehicle outright or acquire it using a loan but not a lease, you can deduct a portion of the original cost of the vehicle (plus sales taxes).
The annual deduction is based on a percentage of the original cost of the vehicle excluding sales taxes and subject to a maximum original cost excluding sales taxes. This deduction is then proportionally reduced to the number of kilometres driven for business.
Capital Cost Allowance (CCA)
The allowable deduction for Capital Cost Allowance or CCA is 15% of the cost of the vehicle including sales taxes in the year the vehicle was purchased and 30% of the remaining balance in each of the following years. This is then reduced proportionally to the number of business kilometres driven.
For example: If vehicle with a cost of $25,000 including sales taxes is acquired in 2008, the annual tax deductions would be as follows:
If the original cost of the vehicle acquired in 2008 was $35,000 excludingsales taxes then only $30,000 plus sales taxes may be used for the purposes of determining CCA.
Interest on a loan used to acquire the vehicle is subject to a monthly interest limit of $300 per month for 2008 that is then reduced proportionally to reflect the number of business kilometres driven.
See our Automobile Rates & Limits Table
If you lease your vehicle then you cannot deduct capital cost allowance or interest expense. However you are entitled to deduct the annual lease expense plus applicable sales taxes and in proportion to the number of business kilometres driven in the year.
The maximum allowable deduction in 2010 was $800 per month plus sales taxes that is then reduced and in proportion to the number of business kilometres driven in the year.
See our Automobile Rates & Limits Table
Tip: If you are required to make an up-front lump sum payment, then this amount is part of your regular lease payments in the year it is paid. However, you may elect to divide the lump sum payment by the number of months in the lease and include it as part of your monthly lease payment.
- Driving to your place of employment is not considered business use. However, if you are required to meet with clients or make other business stops between your home and the office then the total travel during the day may be considered business rather than personal use.
- If you are entitled to deduct expenses from employment income you may be entitled to claim a rebate of GST or HST paid on those expenses. See T4044 Employment Expenses.
What Business Tax Software Should You Choose?
If you have business or self-employment income to report on your personal tax return, you should be using TurboTax Home & Business. The on-line version will allow you to do a single return for only $39.99. If you have more than one return or want to save your software, try the down load version for $99.99.
CRA & Other Resources
- Automobile Rates & Limits Table
- CRA – T2200 Declaration of Conditions of Employment
- CRA – T4044 Employment Expenses