Deducting Automobile Expenses For Work

by Tax Guy - Burlington Accountant on February 18, 2011 Print This Post Print This Post

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.

1950's car

By cliff1066 (CC 2.0) via Flickr

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:

Year
KM
KM
Rate
Maximum
Deduction
Allowable
Deduction
200835,00020,00015%$3,750 $2,143
200935,00015,00030%$6,375 $2,732
201035,00030,00030%$4,463 $3,825

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 Expense

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

Lease Costs

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.

Other Tips:

  • 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

Looking For Professional Help?

If you’re looking for advice or tax planning services, you can contact me directly through my professional tax practice.

About The Tax Guy...

Dean Paley CGA CFP is a Burlington accountant and financial planner who services individuals and business owners locally, nationally and internationally. Dean has appeared in the National Post, Toronto Star and Metro News.

To find out more, visit Dean's website Dean Paley CGA CFP or connect via Twitter @DeanPaleyCGACFP.

Print This Post Print This Post

{ 7 comments }

Michael James February 18, 2011 at 6:23 pm

I tried to do this for my business, but it was unbelievably tedious to maintain a logbook and to keep track of all the little costs associated with a car. The accounting requirements from CRA for claiming vehicle costs are unreasonably onerous. It is honest people who are punished the most. Less honest people will just make up a plausible-looking logbook.

Tax Guy February 19, 2011 at 1:02 am

It all boils down to a system.

Long ago, when I used my car for business, I had an inexpensive daytimer. I would write my mileage at the beginning of the work day and end of work day. At the end of the week, I knew exactly the percentage business use.

In the end,the CRA is looking for a system and reasonableness. They don’t expect perfection.

Ray April 5, 2011 at 6:30 pm

I OWN my vehicle and used it for business from Jan to May 2010…I then LEASED a second new vehicle which I then used exclusively for business from June to Dec 2010…(note that I did not dispose of the first vehicle and continue to own it as a second car used exclusively for personal use).

My question is how do I address this for 2010 taxes?…I can use my lease costs for my new vehicle from June to Dec 2010 but am I allowed to also apply CCA to my first vehicle that I used from Jan to May 2010?

Thank you in advance!…reviewed all CRA documents and no direction given in this particular situation.

Dani_S April 6, 2011 at 6:45 pm

@Ray

Have you found anything yet? My husband is in EXACTLY the same situation as you. Struggling to find anything to explain how to deal with this.

Dani_S April 6, 2011 at 7:37 pm

Ray, I found this (at http://www.cra-arc.gc.ca/E/pub/tp/it478r2/it478r2-e.html#P112_13245)

Depreciable Property Not Disposed of After Ceasing to Carry on a Business

¶ 8. If a business is discontinued, the taxpayer is not entitled to claim a terminal loss for the UCC of a particular class of depreciable property that was used in the business unless and until all the assets in the class are disposed of (see the requirement in ¶ 7(b)). Thus, for example, if the taxpayer retains property of the class without using it for any other purpose, no terminal loss in respect of the class can be claimed. Furthermore, the taxpayer is not entitled to claim CCA on the property in any subsequent year unless it is used in that year to earn income from a business or property as required for purposes of a deduction under paragraph 20(1)(a) of the Act and subsection 1100(1) of the Income Tax Regulations. If, on the other hand, the taxpayer commences to use the property for a non-income-producing purpose, there is a deemed disposition of the property at that time at its fair market value pursuant to paragraph 13(7)(a). Such a deemed disposition could result in a CCA recapture or possibly in a terminal loss (the latter would require that no other property remain in the class).

So looks like, because we’re continuing to use for non-income producing purposes, we have to calculate a terminal loss for CCA purposes using the market value of the car as the deemed proceeds.

Ray April 7, 2011 at 10:57 am

Thanks Dani…from what I have read and what you provided, if you change a vehicle’s use from business to personal you have “disposed” of it.
16. subsection 1100(2.5) of the Regulations permits an individual to claim, in the year of disposition of a “passenger vehicle” that was included in class 10.1 and that was owned by the individual at the end of the preceding taxation year, one-half the amount that the individual would have been permitted to claim as capital cost allowance had the vehicle not been disposed of.

It also states that if you have a class 10.1 vehicle (>$30000 at purchase) one cannot claim “recapture CCA” or “terminal loss”…hmmm trying to get my head around this…almost prepared to just forego this CCA for my first vehicle to avoid any flags…

Joss March 20, 2012 at 4:31 pm

I bought a car in 2009, never claimed any CCA but started using it for work in 2011. Is my inital value the full allowable amount ($30,000)? do I depreciate at 15% or 30% for 2011?

Thanks

Comments on this entry are closed.

Previous post:

Next post: