What is a Typical Motor Vehicle Expense Deduction?

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What is a Typical Motor Vehicle Expense Deduction?

If you do any amount of driving for work-related purposes, you might be able to claim allowable motor vehicle expenses on your next CRA tax return. Keep reading to learn more about what kind of deduction you can expect, and how to claim it.

Is an employer required to reimburse for mileage?

Employees who receive a car allowance get compensated by their employer for using their vehicle in the context of their work without having to account for its use. These payments are in addition to their regular wages or salary and are taxable unless they are based on a reasonable per-kilometre rate.

All things considered, your employer is not required to reimburse you for your mileage. If you don’t receive a vehicle allowance or a mileage allowance from your employer despite being expected to use your personal vehicle for work-related tasks, you can claim certain vehicle-related expenses on your CRA income tax return.

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What are allowable motor vehicle expenses, and who can claim them?

Allowable motor vehicle expenses include:

  • Fuel costs, including gasoline, propane, and oil
  • Maintenance and repair costs
  • Insurance
  • Licence and registration fees
  • CCA, or capital cost allowance
  • Money borrowed to buy a motor vehicle, including eligible leasing costs.

If you meet all of the following conditions, you are eligible to claim allowable motor vehicle expenses on your taxes:

  • When required to work somewhere other than your employer’s place of business or in different locations in the course of your regular work;
  • You had to pay for your motor vehicle expenses, as stated in your contract of employment. If your employer reimburses you for your motor vehicle expenses, or you refuse compensation or reasonable allowance from your employer, you are not eligible to claim these expenses;
  • Did not receive a non-taxable allowance for your motor vehicle expenses. Normally, allowances based on a reasonable per-kilometre rate are non-taxable;
  • You keep a signed record of Form T2200, Declaration of Conditions of Employment, which has been completed by your employer.

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How to calculate allowable motor vehicle expenses

If you use your vehicle for personal and business-related purposes, here’s how to calculate the motor vehicle expenses you can deduct on your income tax return.

First, figure out what your overall expenses were for the year. For example:

Licence and registration fees: $100
Gas and oil: $3,000
Insurance: $1,080
Interest: $650
Maintenance and repairs: $500

Total expenses for the vehicle: $5,330

If you drove 25,000 km for business purposes and 5,000 km for personal purposes, you would calculate your motor vehicle expense deduction as follows:

(25,000 business km ÷ 30,000 total km) x 5,330 = $4,441.67

On this amount, you can also add any parking charges you incurred for business purposes, along with any supplemental business insurance you took out.

To use this formula, remember to keep a logbook of all business and personal related drives throughout the tax year. To simplify the process, consider automating this process with a mileage tracking app like MileIQ.

You will also want to keep a record of all receipts for gas purchases and routine maintenance for your vehicle. Any time you claim a business expense, you must be able to back it up. Concerned with the clutter paper receipts might generate? Consider keeping digital copies of your records and keeping them in a dedicated folder on your computer.

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Don’t miss out on claiming your allowable motor vehicle expense deduction!

Wondering whether it’s worth it to track the number of kilometres you drive for business-related purposes? Depending on the kind of car you drive, the average cost of vehicle ownership could be higher than you think. In fact, even if you only use your vehicle for work a small percentage of the time, deducting your allowable motor vehicle expenses can provide you with some tax relief.

According to an article published by Global News, transportation expenses generally account for 20 percent of a middle-class household’s income after taxes. If you include vehicle depreciation and fuel charges, owning a vehicle can cost between $8,600 and $13,000 a year. If you are incurring these amounts to earn business income, you owe it to yourself to claim them on your taxes.

Victoria Morrison

Victoria Morrison is a freelance translator, editor and small business owner from Montreal, Canada. You can find out more about her work at VictoriaMorrison.ca

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

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