How to Deduct Mileage When You’re Self-Employed
If you’re a self-employed worker who uses your personal car for business purposes, you could be leaving money on the road. The CRA allows you to deduct motor vehicle expenses on your taxes. Here’s what you need to know about deducting your business mileage in Canada.
Writing off motor vehicle expenses
Some say the tax code is built with the intention of incentivizing businesses and entrepreneurship. The CRA knows there’s a cost associated with using your motor vehicle for business reasons. To address this, the government agency allows you to deduct a portion of your motor vehicle expenses during tax time.
The CRA lets you deduct the following for your personal vehicle:
- License and registration fees
- Gas and oil
- Maintenance and repairs
Why you must track kilometres
It’s pretty straightforward to track the costs of your vehicle expenses. Just maintain a good system for tracking all your business expenses. But you can’t just write off those costs, you also have to track all of your drives.
Not only does the CRA want a mileage log of your kilometres, you’ll need one to calculate the value of your deduction every year. Unless it’s a 100 percent business vehicle, you’re going to have to separate the business from personal drives in order to calculate your deduction.
To calculate your motor vehicle expense deduction, follow this formula:
- (Business kilometres / Total kilometres) X Total Vehicle Expenses = Motor Vehicle Deduction
Calculating your deduction
Let’s say Melissa is a real estate agent in the Vancouver area. She uses her personal car to meet clients, vet properties and general business purposes. Melissa wants to calculate her motor vehicle expense deduction for tax time.
She keeps diligent track of her expenses and uses a mileage tracking app like MileIQ to log all her drives. Her figures look like:
- License and registration fees = $100
- Gas and oil = $2,400
- Insurance = $1,900
- Interest = $800
- Maintenance and repairs = $200
- Total vehicle expenses = $5,400
Melissa drove a total of 40,000 kilometres for the year, with 32,000 kilometres being for business. Her deduction would be at least $4,320. She calculates her deduction like this:
- (32,000 business kilometres / 40,000 total kilometres) X $5,400 total vehicle expenses = $4,320 total deduction
Note: She can add the full cost of business parking fees and supplemental business insurance costs.
What records do you need to keep?
For your CRA mileage log, you should keep track of the total kilometres you drive and those drives for work reasons. For the business trips, keep track of:
- The destination
- Date of trip
- The business purpose
- Number of kilometres you drive
Remember to record your car’s odometer reading at the beginning and end of the fiscal period.
Keep in mind, you don’t have to submit your mileage log when you file your taxes or when you claim deductions. Still, it’s important to keep detailed records because if the CRA ever audits your return, you’ll want accurate, compliant records.
If you don’t have a proper CRA mileage logbook, your motor vehicle deduction could be disallowed. Even worse, the CRA could impose additional penalties and fines. It pays to keep an accurate, compliant mileage log.
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