What Tax Form Do You Use to Deduct Motor Vehicle Expenses?

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What Tax Form Do You Use to Deduct Motor Vehicle Expenses?

You can claim motor vehicle expenses on your taxes for a deduction. Here’s how to do it, as well as what tax forms you should be using.

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Who Can Deduct Motor Vehicle Expenses?

The self-employed can deduct their motor vehicle expenses on their income tax return. The CRA knows there’s a cost associated with using a personal car for business reasons, so it allows people to write off some of those costs. This is similar to how it allows self-employed to deduct other business expenses.

How Much Are My Motor Vehicle Expenses Worth On Taxes?

It depends on how much you drive for your business. Needless to say, this can lead to a major impact on your taxes. Remember, the more deductions you have, the lower your taxable income is and that leads to lower taxes paid.

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How Do I Calculate My Motor Vehicle Expense Deduction?

You can calculate motor vehicle expenses by using the following formula:

  • (Business kilometres / total kilometres for the year) X Total motor vehicle expenses = Motor Vehicle Expense Deduction

Your total motor vehicle expenses include things like the cost of licenses, insurance, gas and oil, repairs and more.

For example: If you spent $5,400 on your car and drove 40,000 kilometres with 32,000 business kilometres, your deduction would be $4,320. For the above formula, this would be: (32,000/40,000 x $5,400 = $4,320.

What Tax Form Do I Use For My Motor Vehicle Expenses?

Use Form T2125 to report your business and professional income and expenses. You’ll use Line 9281, Part 17, to report your motor vehicle expense deduction for the year.

What Records Do I Need To Keep To Deduct Motor Vehicle Expenses?

The CRA says you can deduct expenses when they’re “reasonable and have receipts to support them.” So, keep diligent track of your expenses.

When it comes to your mileage, you’ll need a vehicle logbook of your kilometres and business kilometres. For each business trip, you’ll need:

  • The date of the trip
  • Destination
  • The business purpose
  • The number of kilometres you drive

The CRA also wants to know the odometer reading of your car at the start and end of the fiscal period.

How To Keep A Vehicle Mileage Log?

You can keep a manual mileage log, a digital spreadsheet of your trips or rely on a mileage-tracking app like MileIQ. A manual log can be tough to keep up throughout the year and so can a spreadsheet. MileIQ’s automatic mileage tracking could make it easier to get the most out of your kilometres this year.

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Marin Perez

Marin has been writing about how technology improves lives for about a decade. He's excited to see how entrepreneurs are using tools like MileIQ to be more successful. When not working, he's thinking about his next trip.

MileIQ’s blog does not constitute professional tax advice. You should contact your own tax professional to discuss your situation.

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