Published: March 20, 2020
Last Updated: October 22, 2020
Automobile Expense Deduction for Canadian Income Tax Purposes – Tax Help from Toronto income tax lawyer
Whether you’re self-employed or an employee, you may be able to claim an income tax deduction for certain automobile expenses that you incur to earn income. Wondering if you are eligible for such deductions? An employee who is ordinarily required to perform their work away from the employer’s place of business or in different places may qualify. Basically if your job starts out at the office and then moves you around all day, you may be allowed to deduct some related car expenses. If there is no office at all and you are on the road for work at all times, then you may qualify as well. Consult one of our top Toronto income tax lawyers to determine if you are eligible to deduct your automobile expenses.
Here are a few examples of employees who may qualify:
- Real Estate Agents
- School Inspectors
- And many more!
Here are a few tips on how to ensure that your claim for automobile expenses is accepted by Canada Revenue Agency (“CRA”):
Keep all of your receipts for:
- License fees
- Registration fees
- Loan Interest ($300 per month maximum)
- And other car-related expenses
Tax Tips to Claim Income Tax Deduction for Auto Expenses
Here are a few tax tips on how to ensure that your income tax deduction claim for automobile expenses is accepted by Canada Revenue Agency (“CRA”):
Car Log to Claim Auto Expenses Deduction for Canadian Income Tax
Keep a car log and do not claim personal trips – Personal trips include:
- Driving between home and the workplace
- Driving to the grocery store
- Driving your kids to school
- Driving to sporting events
- Driving to the mall
- Driving to lunch from the workplace
- Every Tim Horton’s run
- Driving to your vacation
- Driving to Grandma’s
- Driving to the park
- And anything not directly related to a business need.
Car log basics
The goal of a car log is to record the business/employment use of your vehicle. In order to achieve this goal, the log should include the following information for each business use:
- Point of Departure
- Starting kilometre reading on your odometer
- Ending kilometre reading on your odometer
- Purpose of trip
- Any costs incurred that are specific to that trip, e.g. parking, tolls
The log should also record the kilometre reading on your odometer at the beginning of the year, and the kilometre reading on your odometer at the end of the year. This way you will be able to calculate your business use as a percentage of your total vehicle use.
Car logs are also useful if your employer provides you with an automobile. By default, this would be treated as a taxable benefit, which would increase your taxable income. However, if you keep a car log, you may be able to reduce the taxable benefit by the percentage of business use of the vehicle.
CRA’s practice is to require a car log. If you do not have one and you are audited, CRA may disallow your claim for automobile expenses. The Tax Court may still allow your claim for expenses if you give credible testimony regarding your business use of the vehicle. However, going to Tax Court is expensive and time consuming, and the results are never guaranteed. Keeping a car log, on the other hand, is quick and easy. Recently, it has become even easier, as software developers have started offering car log apps for the iPhone, Android and other phone platforms.
Form T2200 to Claim Employee car Expenses
Lastly, have your employer complete and sign Form T2200 which you must keep a copy of for your records.
The above information is applicable to both employees and self-employed persons. As long as you keep the necessary documentation, automobile expenses may be deductible.
If CRA has audited you and challenged your automobile expenses, we may be able to help. Call our experienced Toronto Income Tax lawyers to find out more and to schedule an initial consultation.
"This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer."