By Scott Taylor
Last month I gave a short presentation at a carrier’s driver meeting. At the end, I always encourage attendees to ask any questions they have about what “other guys” are doing or talking about. To be honest, I learn a lot this way.
Of all the topics we covered, we spent the most time talking about service vehicles—a car or truck used for business—and specifically the expenses you can deduct.
One of the great myths of being self-employed is that if you lease a service vehicle you can deduct 100% of the payment and related expenses as business. Others will say that the type of vehicle—i.e. pickup truck vs. a car—affects the amount or percentage of your allowable deduction.
And there’s always one guy who insists he can fully write off his new F-150 as long as he runs the odd business errand.
None of it’s true.
In fact, a tax auditor doesn’t care what type of vehicle you have or how you finance it. He only wants to see that your vehicle-related expenses were incurred to earn business income and that you have documents to support your claims.
CRA is clear about the type of vehicle expenses you can deduct. These include licence and registration fees; fuel costs; insurance; interest on money borrowed to buy the vehicle; maintenance and repairs; and your lease payment or capital cost allowance (CCA or depreciation).
If your vehicle is categorized as a “passenger vehicle,” your claim for your financing expense (i.e. lease payments or CCA and interest costs) has limits. Lease payments can’t exceed $800 per month. If you purchased the vehicle, the cost can’t be more than $30,000. If it costs more, you can only add $30,000 plus the appropriate taxes (PST, GST, or HST) onto your CCA schedule. The other cost of purchasing—interest on your loan—is limited to $10 per day. So if you own the vehicle for the entire year, $3,650 is the maximum claim. If you own it for less, you must prorate the interest expense claim for the appropriate number of days.
To support your vehicle expense claim, you must keep a record showing the total kilometers you drive in a year (e.g. your odometer readings on January 1 and December 31). Then, each time you use the vehicle for business, list the date, destination, purpose, and the number of kilometers you drive.
You need these figures in order to determine the percentage of business use to be applied against your overall vehicle expenses (divide your business-use kilometers by your total kilometers for the year, giving you anywhere from 1% to 100%). If you can’t produce a journal or log detailing the business use of the vehicle and validating that percentage figure, CRA can deny or reduce your claim.
If you use more than one vehicle for your business, keep a separate record that shows the total and business kilometers you drive in each. Calculate and deduct the cost to run and maintain each vehicle separately based on its own business use.
Is it Business?
There are all kinds of business reasons to use your vehicle, from a revenue-producing courier delivery to a trip that involves banking, a run to the parts store, or a meeting with your carrier. What’s not valid is the drive from home to your truck. This is considered commuting—a personal trip. I’ve argued this with CRA numerous times, using the logic that since the business office is in the home, then driving from the “office” to a work site is business travel. I don’t think I’m wrong but I haven’t found an auditor yet who has bought the argument.
Check the Facts
When it comes to service vehicle expenses, don’t be steered into the ditch by what you hear at the truck stop or in the driver’s lounge. Talk to an accountant or someone qualified to give tax advice.
CRA’s guide, T4002 Business and Professional Income, is a great reference on motor vehicle expenses (look for it online at www.cra-arc.gc.ca). Note how many times it mentions supporting claims with a detailed record.
If you use a vehicle for business and personal use, it’s vital that you know what’s deductible and how to keep valid records because I doubt there’s ever been a small business audit that did not review these expenses.
Scott Taylor is vice president of TFS Group, providing accounting, bookkeeping, tax return preparation, and other business services for owner-operators. Learn more at www.tfsgroup.com or call 1-800-461-5970.