Motor Vehicle Expenses – What Can I Deduct?
If you use your automobile in any way to earn income or to maintain the operations and administration of your business, you should be deducting your motor vehicle expenses.
The types of motor vehicle expenses you can deduct include:
• fuel (gasoline, propane, oil);
• maintenance and repairs;
• license and registration fees;
• capital cost allowance;
• eligible interest you paid on a loan used to buy the motor vehicle;
• eligible leasing costs.
Receipts – original or electronic – must be kept for all expenses just in case you’re ever audited.
There are many great apps out there (such as Receipt Bank) that enable you to take a picture of the receipt and keep it in a safe location for review or printing when needed. If you have an electronic copy of the receipt, you do not have to keep the original.
The total amount of the expenses is not completely deductible, however. You are only able to deduct the expense based on the percentage of the car that you used for business purposes.
This is tracked by keeping an auto log. Unless you have an auto log available to support the business percentage use of the automobile, there is a good chance that if you’re audited, the CRA would not allow the automobile expense deduction.
There are many apps available that can track your travels and differentiate between business-related kilometres versus personal ones.
Lease Versus Purchase
You can deduct Capital Cost Allowance on your vehicle if you own it. This means you can expense the cost of your vehicle over time based on the CRA rates of 30 per cent per year (15 per cent in the year of purchase of the vehicle).
The maximum amount you can deduct is $30,000. Any amount you spend on the purchase of your vehicle more than $30,000 is not an allowable deduction. However, if you lease your vehicle, the maximum lease cost you can deduct is $800 per month.
So, if the vehicle you are looking to purchase is more than $30,000 and you use it for business purposes, you might want to ask about the lease options, as well. Typically, this will allow a much larger deduction over time. Then after a few years of leasing, you could purchase the vehicle once the post-lease cost (buy out option) of the vehicle is around $30,000. If you are using your vehicle to earn income, start tracking your mileage and keep your receipts. Then talk to your accountant when completing your tax return so you can have support for the expense that you are entitled to deduct.