To substantiate the business use of a vehicle, the Canada Revenue Agency (CRA) requires that a mileage log be kept for each vehicle used during the fiscal year.
The log should record the date of each business trip, destination, reason for the trip, and the kilometers driven. The odometer reading of the vehicle must also be recorded, at the beginning and end of each year, to determine the total kilometers driven in the fiscal year.
If you buy, sell or trade your vehicle during the year, be sure to record the odometer reading at that time.
This requirement can be time consuming and tends to be forgotten by most business persons as they go about the daily job of earning a living. With this consideration in mind CRA has indicated they would “afford considerable weight” to a trip log maintained for a “sample period” as evidence of the business use for a full year.
Logbook for a sample period
Once a taxpayer has maintained a trip log covering a full 12-month period that is typical for the business (the “base year”), CRA will consider a “sample period” log, if it meets the following criteria:
- A trip log must be maintained for a sample period of at least one continuous 3 month period in each subsequent year after the base year.
- The distances traveled and business use of the vehicle during the 3 month sample period is within 10% of the corresponding figures for the same 3 month period in the base year.
- The calculated annual business use of the vehicle in a subsequent year does not go up or down by more than 10% in comparison to the base year.
While this would mean considerably less work we would like to stress that it would be a good practice to maintain as full a log as possible. For well established businesses the criteria should be obtainable but for businesses in the growth stage the 3 month periods between fiscal years will likely vary by more than 10%. In addition, while CRA may consider the “sample log” as indicative of the full year, they are not required to do so and can demand that a full annual log be presented before they accept the vehicle expenses claimed. Overall we do not recommend cutting corners.