Dollars and Sense: Vehicle Expenses

Wednesday, March 07, 2007 03:44 AM

Over the past week, I've had plenty of questions about vehicle expenses.

This is an area if, done properly, shouldn’t cause a lot of problems. Unfortunately, it involves some record keeping, which is the downfall for most of us. So, what should you do?

The plain and simple answer is you need to keep a mileage log. You should track the date, destination, purpose and number of kilometers driven for employment or business purposes. You will also need to track the odometer reading at the beginning and the end of each year.

This sounds simple, doesn’t it? Keep a mileage log and the Canada Revenue Agency (“CRA”) will consider this as support to making a reasonable vehicle expense claim on your tax return. While I am not going to speculate on how many people keep a mileage log, I will tell you this is an easy “catch” for CRA’s auditors. One of their first questions, after finding out you use a vehicle for work, is: Can I see your mileage log? I have been involved in many situations where a mileage log was not kept and the CRA auditor has denied all vehicle expenses. My client is then placed in the unenviable position of having to go back and try to recreate a mileage log for trips that were 3 to 4 years ago.

If you’re disciplined enough to keep and use a mileage log in your vehicle, good on you. If not, keep track on your calendar, PDA, Outlook, appointment book, etc. Anywhere you are going to be able to go back to see where you have gone.

If you drive more than one vehicle for work, you’ll need to track each vehicle separately. You should also note the CRA considers driving back and forth between your home and work as personal use.

If you keep all your receipts for gas, repairs and maintenance, insurance and other related car expenses, you can expense the business portion based on your mileage log.

You can also use a simplified approach. From your mileage log (there’s that word again), total all your work kilometers. For 2006 and 2007, multiply this total by $.50 per kilometer for the first 5,000 kilometers and $.44 per kilometer thereafter. If you travel to Nunavut, Yukon and Northwest Territories, these numbers are increased to $.54 and $.48, respectively.

If you use your vehicle for work, keep a mileage log. If the CRA ever looks at your taxes, you’ll be glad you did.

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Sheila Nelson is a Chartered Accountant and partner at Chan Foucher Lefebvre LLP (www.cflca.com)

Send her your questions at: sheilan@cflca.com

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Posted on Wednesday, March 07, 2007 03:44 AM in Money by Sheila Nelson, CA

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Comments

Posted by: Smooth on March 7 2007 8:03 AM

Am I correct that slapping your company's name on the side and saying it is advertising does not allow you to write off 100%. Seems to me there are a lot of people doing this. We should hire more auditors because they likely pay for themselves 10 fold in catching those who lie. In my opinion those who are making fraudulent claims like this are stealing from every tax payer and not the government like they may want to think to justify what they are doing.

Smooth

Posted by: Gofaster on March 7 2007 3:23 PM

It must be ok.... or at least until they get caught....after all the rules apply to everyone but them!

Posted by: charles on March 7 2007 7:58 PM

Every year the income tax act and regulations get bigger and bigger.

More and more countries around the world are changing to a flat tax system.

It is insane for citizens and busineses in Canada to have to spend a fortune on accountants, tax lawyers, and tax preparers
to get their income taxes done every year.

The last I heard is that the Canada Revenue Agency has over 20,000 employees.

Although a flat tax would result in the elimination of most of the jobs at the Canada Revenue agency, and accountant, and tax lawyer jobs , the country would be a lot better off, because it would be so much simpler (and cheaper) for individuals and businesses to prepare their income taxes. The way our present system is going with tax preparation getting more and more complicated every year, pretty soon some kid who is delivering newspapers is going to have to get professional help to prepare their taxes.

I think any future flat tax system should be progressive and give a break to those folks who are low wage earners .

Posted by: Chadermando on March 7 2007 8:55 PM

I agree with Charles that we should have a flat tax. I would put it at 17% for anyone with taxable income above $24,000. Any short fall in revenue I'd make up for with the GST.

As for smooths question. I think the matching principle would apply. 'Right to recieve production' 18.1, the income tax act. Can you match your expense to creation of revenue. I think if you were losing money and doing very little business a sticker on your door would not help you. On the other hand if the miles put on the vehicle could be shown that they are business use related to future revenue, then it would be an income tax deduction. Where it gets iffy is when you have a business related expense with no guarantee of future revenue such as in the case of an exploration company or like business. In the end it doesn't really matter much if you put a sticker on your door or not.

Posted by: supertech on March 7 2007 11:56 PM

Don't get me started