How to Track Mileage for Taxes in Canada?
If you drive for work, you may be eligible to claim a vehicle expense deduction on your next CRA tax return. To do this, you will need to make sure to keep an accurate mileage log of all business trips to back up your claims.
Now that MileIQ for Canada is live, it’s easier than ever to claim the mileage deduction you deserve. Keep reading to find out more about CRA mileage log requirements, along with how to claim them on next year’s taxes.
What’s required when tracking mileage for taxes?
The Canada Revenue Agency lets taxpayers claim the expenses associated with using their vehicle for work, including business mileage.
They won’t take your word for it, though. You’ll have to keep records of your business mileage if you ever face an audit. The CRA states that “the best evidence to support the use of a vehicle is an accurate logbook of business travel maintained for the entire year.”
What should you include in your CRA mileage log?
There are two ways you can go about it: you can either keep a full logbook, or a simplified logbook.
A full logbook will include your business travel information for the entire year. Each entry must include:
- The date of the trip
- The purpose of the trip
- The destination
- The distance travelled.
To claim vehicle expenses, you must be able to back up your expenses. Keep receipts for all oil changes, routine maintenance, repairs, and gas purchases.
It is also a good idea to keep a record of the total kilometres you drive with your vehicle. To do this, record your odometer reading at the start and end of each fiscal period.
How long do you need to keep your logbook for?
It’s a good idea to keep records and supporting documents such as receipts for a period of six years. This will allow you to back up your claims should you ever undergo an audit.
Make sure to keep a record of your full logbook as long as you’re using it, and for six years after you stop using it. In other words, if you established a full logbook in 2010 and used it to establish your annual driving percentage until 2016, you will need to keep a record of that logbook until 2022.
If you use more than one vehicle for your business activities, make sure to keep a separate logbook for each vehicle. When claiming a vehicle expense deduction for multiple vehicles, you must calculate each vehicle separately.
What happens if I don’t have a mileage log?
Keeping a logbook for your vehicle guarantees that the information you need when it’s time to claim expenses will be there. Without one:
- You won’t be able to back up your claims should you face an audit by the CRA
- It will be very difficult to keep personal use and business use separate
- You won’t have the information you need to claim a vehicle deduction if the allowance arrangements you have with your employer ever change
- You might miss out on potential vehicle expense deductions if you don’t have the records to back them up.
How to track mileage for taxes?
These days, things are much easier. With smartphones, tablets, and mileage-tracking apps, technology can do much of the legwork so that you don’t have to. Automating your mileage logs can also save you a great deal of time and stress in the long term.
Even if you never get audited, the mileage reports generated by apps like MileIQ will make claiming a vehicle expense deduction that much easier for you or your accountant.
Can I claim mileage on my tax return?
One of the most important things to understand is that your mileage is used to figure out your percentage of business drives. Because personal commutes are almost never considered a business drive, it is unlikely that any vehicle will be used for business 100% of the time.
If you use your vehicle for business 80% of the time, that means you will be able to claim 80% of your total vehicle expenses on your taxes. In other words, the number of miles you drive does not result in a deduction; the money you spend does.
Knowing this, make sure to keep a record of all of your receipts! This includes expenditures for the following:
- Fuel and oil
- Licences and registrations
- Routine maintenance and repairs.
Vehicle expenses also include Capital Cost Allowance, eligible interest paid on a loan to buy your vehicle, and eligible leasing costs. Make sure to keep any records associated with these expenses as well.
How do I calculate my motor vehicle expenses?
Once you’ve determined your percentage of business drives, use the following formula:
- (Business kilometres / total kilometres ) X total vehicle expenses = Motor vehicle deduction.
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