Only expenses of a business nature are eligible as a deduction against related income. As such CRA requires that there be a means to both substantiate and allocate vehicle expenses between personal and business use. A vehicle log, detailing each business trip ( client name, address, odometer reading at start, odometer reading at arrival, total mileage used) is the de facto means required for this purpose and the one feature of business that is most often over looked.
If you do not currently keep a log the best way to recreate the missing data of the year is to pull out your day timer or other appointment log and work from there using MapQuest to give you travel distances. Note your current odometer reading and the date and going forward add in the mileage involved in each business related trip. At year end note the odometer reading again.
Expenses for vehicles fall into three categories:
- operating expenses which must be prorated between personal and business
- operating expenses which are strictly business
- fixed expenses which must be prorated between personal and business (subject to special rules and restrictions)
The first category includes gas, repair,maintenance, insurance, license and registration. The second category includes parking and repairs incurred while on a business trip. The third category relates to your lease payments or the depreciation taken on owned vehicles.
As this issue is one on which CRA catch many business owners and those claiming deductions from employment of a T2200, and as it may have an impact on the income reported on your T4, if you pay yourself a salary, we recommend that you speak to your Padgett Business Services representative.